UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 033-80623

OncoGenex Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		95-4343413 (I.R.S. Employer Identification Number)

1522 217 ^th Place SE, Suite 100, Bothell, Washington 98021
(Address of Principal Executive Offices)

(425) 686-1500
(Registrant’s telephone number, including area code)

Indicate by check 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 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 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class Common Stock, $0.001 par value		Outstanding at August 1, 2009 6,027,631

 

 

OncoGenex Pharmaceuticals, Inc.
Index to Form 10-Q

		Page
		Number
Part I. Financial Information
Item 1. Consolidated Financial Statements (unaudited)			3
Consolidated Balance Sheets (unaudited) as of June 30, 2009 and December 31, 2008			3
Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2009 and June 30, 2008, and the period from May 26, 2000 (inception) to June 30, 2009			4
Consolidated Statements of Cash Flows (unaudited) for the three and six months ended June 30, 2009 and June 30, 2008, and the period from May 26, 2000 (inception) to June 30, 2009			5
Notes to Consolidated Financial Statements (unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
Part II. Other Information
Item 1A. Risk Factors			32
Item 4. Submission of Matters to a Vote of Security Holders			32
Item 6. Exhibits			33
Items 1, 2, 3, and 5 are not applicable and therefore have been omitted
Signatures			37
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1.		Consolidated Financial Statements

OncoGenex Pharmaceuticals, Inc.

(a development stage enterprise)

(In thousands of U.S. dollars)

		June 30,				December 31,
		2009				2008
		$				$
						Note 1
ASSETS
Current
Cash and cash equivalents			4,196				7,618
Short-term investments [note 4]			1,505				4,801
Amounts receivable			30				153
Investment tax credit recoverable			377				1,090
Prepaid expenses			575				587
Total current assets			6,683				14,249
Property and equipment, net			98				44
Deferred financing charges			93				—
Other assets			509				497
Total assets			7,383				14,790
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities			1,473				2,252
Current portion of long-term obligations [Note 6]			717				632
Total current liabilities			2,190				2,884
Long-term obligation, less current portion [Note 6]			1,255				1,199
Total liabilities			3,445				4,083
Commitments and contingencies [Note 8]
Common Shares:
$0.001 par value 11,019,930 shares authorized and 5,551,760 issued and outstanding at June 30, 2009 and 5,544,114 issued and outstanding at December 31, 2008			6				6
Additional paid-in capital			56,275				56,070
Deficit accumulated during the development stage			(54,982	)			(48,009	)
Accumulated other comprehensive income			2,639				2,640
Total shareholders’ equity			3,938				10,707
Total liabilities and shareholders’ equity			7,383				14,790
Subsequent Events [Note 11]

See accompanying notes.

OncoGenex Pharmaceuticals, Inc.

(In thousands of U.S. dollars, except per share and share amounts)

																		Period from
																		26-May-00
		Three Months Ended								Six Months Ended								(inception) to
		June 30,								June 30,								June 30,
		2009				2008				2009				2008				2009
		$				$				$				$				$
EXPENSES
Research and development			3,588				1,108				5,282				1,982				33,890
General and administrative			1,003				646				1,785				1,219				15,207
Total expenses			4,591				1,754				7,067				3,201				49,097
OTHER INCOME (EXPENSE)
Interest income			3				10				36				91				1,448
Other			31				(223	)			55				(300	)			(528	)
Total other income (expense)			34				(213	)			91				(209	)			920
Loss for the period before taxes and extraordinary gain			4,557				1,967				6,976				3,410				48,177
Income tax expense (recovery)			6				201				(4	)			415				104
Loss before extraordinary gain			4,563				2,168				6,972				3,825				48,281
Extraordinary gain [note 2]			—				—				—				—				4,428
Net loss			4,563				2,168				6,972				3,825				43,853
Redeemable convertible preferred share accretion			—				780				—				1,556				11,129
Loss attributable to common shareholders			4,563				2,948				6,972				5,381				54,982
Basic and diluted loss per common share [note 5[e]]			0.82				24.81				1.26				45.29
Weighted average number of common shares [note 5[e]]			5,550,547				118,801				5,548,369				118,801

See accompanying notes.

OncoGenex Pharmaceuticals, Inc.

(In thousands of U.S. dollars)

										Period from
										26-May-00
		Six months ended								(inception) to
		June 30,								June 30,
		2009				2008				2009
		$				$				$
OPERATING ACTIVITIES
Loss for the period			(6,972	)			(3,825	)			(43,853	)
Add items not involving cash
Extraordinary gain			—				—				(4,428	)
Depreciation and amortization			24				28				451
Stock-based collaboration expense			—				—				1,758
Stock-based compensation [Note 5[c]]			173				111				908
Accrued interest on convertible debenture			—				360				505
Changes in non-cash working capital items
Amounts receivable			123				(9	)			250
Investment tax credit recoverable			713				549				(376	)
Prepaid expenses			12				40				(283	)
Other assets			12				—				(117	)
Accounts payable and accrued liabilities			(779	)			387				(1,977	)
Lease obligation			141				—				(112	)
Taxes payable on preferred shares			—				314				—
Cash used in operating activities			(6,553	)			(2,045	)			47,274
FINANCING ACTIVITIES
Cash paid on fractional shares eliminated on reverse share split			—				—				(3	)
Proceeds from issuance of common stock under stock option and employee purchase plans			32				—				156
Issuance of preferred shares, net of share issue costs			—				—				26,719
Issuance of common shares, net of share issue costs			—				—				146
Issuance of convertible debentures net of issue costs			—				—				4,442
Cash provided by financing activities			32				0				31,460
INVESTING ACTIVITIES
Purchase of investments			(1,512	)			—				(90,532	)
Proceeds from sale of investments			4,780				495				106,364
Purchase of property and equipment			(13	)			(4	)			(404	)
Cash received on reverse takeover of Sonus			—				—				5,464
Transaction fees on reverse takeover of Sonus			—				(479	)			(807	)
Cash provided by investing activities			3,255				12				20,085
Effect of exchange rate changes on cash and cash equivalents			(156	)			(26	)			(75	)
Increase (decrease) in cash and cash equivalents during the period			(3,422	)			(2,059	)			4,196
Cash and cash equivalents, beginning of the period			7,618				4,626				—
Cash and cash equivalents, end of the period			4,196				2,567				4,196
Supplemental cash flow information
Property and equipment acquired under lease obligation			65				—				65

See accompanying notes.

OncoGenex Pharmaceuticals, Inc.

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

OncoGenex Pharmaceuticals, Inc. (the “Company” or “OncoGenex”) is a development stage enterprise committed to the development and commercialization of new therapies that address unmet needs in the treatment of cancer. The Company was incorporated in the state of Delaware and, together with its subsidiaries, has a facility in Bothell, Washington for administrative, clinical and regulatory operations and an office in Vancouver, BC for administrative, pre-clinical and manufacturing-related operations.

On August 21, 2008, Sonus Pharmaceuticals, Inc. (“Sonus”) completed a transaction (“the Arrangement”) with OncoGenex Technologies Inc., (“OncoGenex Technologies”) whereby Sonus acquired all of the outstanding preferred shares, common shares and convertible debentures of OncoGenex Technologies. Sonus changed its name to OncoGenex Pharmaceuticals, Inc. and was listed on the Nasdaq Capital Market under the ticker symbol OGXI. These consolidated financial statements account for the Arrangement between Sonus and OncoGenex Technologies as a reverse acquisition, whereby OncoGenex Technologies is deemed to be the acquiring entity from an accounting perspective.

The unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated Balance Sheet at December 31, 2008 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year then ended. The consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2008 and filed with the Securities and Exchange Commission (“SEC”) on March 11, 2009.

We are a development stage enterprise and we require additional funding to support our planned operations, including our planned phase 3 clinical trials of OGX-011 in patients with CRPC. We may obtain additional funding through executing a partnership or collaboration agreement with a third party that has sufficient resources to fund the development of our product candidates, or the licensing or sale of certain of our product candidates, or through private or public offerings of our equity securities or debt financings.

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, OncoGenex Technologies and OncoGenex, Inc. Inter-company accounts and transactions have been eliminated.

2. REVERSE TAKEOVER

The consolidated financial statements account for the Arrangement between Sonus and OncoGenex Technologies, whereby Sonus acquired all of the outstanding preferred shares, common shares and convertible debentures of OncoGenex Technologies, as a reverse takeover wherein OncoGenex Technologies is deemed to be the acquiring entity from an accounting perspective. The consolidated results of operations of the Company include the results of operations of the combined company for the three and six month periods ended June 30, 2009. The consolidated results of operations for the three and six month periods ended June 30, 2008 include only the consolidated results of operations of OncoGenex Technologies and do not include historical results of Sonus.

On August 12, 2008, OncoGenex Technologies’ stockholders approved the Arrangement and on August 19, 2008, Sonus stockholders approved both the transaction and a one-for-eighteen reverse stock split of its common stock. The reverse stock split occurred immediately prior to the completion of the Arrangement. Resulting fractional shares were eliminated. All information in this report relating to the number of shares, price per share, and per share amounts of common stock are presented on a post-split basis.

Under the purchase method of accounting, Sonus’ outstanding shares of common stock were valued using the average closing price on Nasdaq of $5.04 for the two days prior through to the two days subsequent to the announcement of the transaction on May 27, 2008. There were 2,059,898 shares of common stock outstanding, as adjusted for the reverse stock split, on August 20, 2008, immediately prior to closing. The fair value of the Sonus outstanding stock options were determined using the Black-Scholes option pricing model with the following assumptions: stock price of $4.86, volatility of 57.67% to 89.48%, risk-free interest rate of 1.73% to 3.89%, and expected lives ranging from 0.05 to 4.79 years. The fair value of the Sonus outstanding warrants were determined using the Black-Scholes option pricing model with the following assumptions: stock price of $4.86, volatility of 58.71%, risk-free interest rate 3.89%, and expected lives ranging from 0.99 to 1.08 years.

The final purchase price is summarized as follows (in thousands):

Sonus common stock		$	10,385
Fair value of options and warrants assumed			71
Transaction costs of OncoGenex			807
Total purchase price		$	11,263

Under the purchase method of accounting, the total purchase price as shown in the table above is allocated to the Sonus net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the date of the completion of the transaction. The final purchase price allocation is as follows (in thousands):

Cash		$	5,464
Marketable securities			14,808
Accounts receivable			6
Interest receivable			273
Other current assets			175
Furniture and equipment			1,186
Other long term assets			497
Intangible assets			280
Accounts payable			(35	)
Accrued expenses excluding severance payable			(652	)
Severance payable to employees as part of restructuring			(1,322	)
Severance payable to senior executives			(1,440	)
Excess facility loss			(2,083	)
Negative goodwill			(5,894	)
Total purchase price		$	11,263

In accordance with SFAS 141, “Business Combinations” any excess of fair value of acquired net assets over purchase price (negative goodwill) has been recognized as an extraordinary gain in the period the transaction was completed. The excess has been allocated as a pro rata reduction of the amounts that otherwise would have been assigned to the non-current acquired assets. Prior to allocation of the excess negative goodwill OncoGenex has reassessed whether all acquired assets and assumed liabilities have been identified and recognized and performed remeasurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued. The remaining excess has been recognized as an extraordinary gain. Any subsequent adjustments to the extraordinary gain resulting from the changes to the purchase price allocation shall be recognized as an extraordinary item.

The pro rata reduction of non-current and intangible assets acquired is as follows (in thousands):

Negative goodwill		$	(5,894	)
Furniture and equipment			1,186
Intangible assets			280
Excess negative goodwill		$	(4,428	)

Pro Forma Results of Operations

The results of operations of Sonus are included in OncoGenex’ consolidated financial statements from the date of the completion of the Arrangement on August 21, 2008. The following table presents pro forma results of operations and gives effect to the business combination transaction as if the transaction was consummated at the beginning of the period presented. The unaudited pro forma results of operations are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the retrospective periods or of the results that may occur in the future.

		For the six
		months ended
		June 30,
(In thousands, except shares and loss per share)		2008
		$
Revenue		$	—
Net loss applicable to common shareholders		$	(11,044	)
Net loss per share-basic and diluted		$	(92.96	)
Weighted average shares			118,801

3. ACCOUNTING POLICIES

Recently Adopted Accounting Policies

In November 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue 07-01, “Accounting for Collaborative Arrangements,” or EITF No. 07-01. EITF No. 07-01 requires collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election.

Further, EITF No. 07-01 clarified that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer. EITF No. 07-01 is effective for fiscal years beginning after December 15, 2008 and was adopted by the Company on January 1, 2009. The adoption of EITF 07-01 did not have a material impact on the consolidated financial position, results of operations or cash flows.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (Revised 2007), “Business Combinations,” or SFAS No. 141R. SFAS No. 141R will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS No. 141R has not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51,” or SFAS No. 160. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 and was adopted by the Company on January 1, 2009. The adoption of SFAS No. 160 has not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. In September 2008, the FASB issued FASB Staff Position (“FSP”) FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161”. This FSP amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. This FSP also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of indebtedness of Others”, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. Further, this FSP clarifies the Board’s intent about the effective date of FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008 and was adopted by the Company on January 1, 2009. The adoption of these pronouncements has not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP 142-3 also requires expanded disclosure regarding the determination of intangible asset useful lives. FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and was adopted by the Company on January 1, 2009. The adoption of FSP 142-3 has not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB FSB Accounting Principles Board (“APB”) Opinion No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSB APB 14-1”). The FSP will require cash settled convertible debt to be separated into debt and equity components at issuance and a value to be assigned to each. The value assigned to the debt component will be the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair value will be recorded as a debt discount and amortized to interest expense over the life of the bond. FSP APB 14-1 was adopted by the Company on January 1, 2009. The adoption of FSB APB 14-1 has not had a material impact on the Company’s consolidated financial position, results of operations, cash flows or earnings per share.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method as described in SFAS No. 128, “Earnings per Share.” Under the guidance in FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 and was adopted by the Company on January 1, 2009. All prior-period earnings per share amounts presented shall be adjusted retrospectively. The adoption of FSP EITF 03-6-1 has not had a material impact on the consolidated financial position, results of operations or cash flows.

In June 2008, the FASB ratified the consensus reached by the EITF on Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”). EITF No. 07-5 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. EITF No. 07-5 applies to any freestanding financial instrument or embedded feature that has all of the characteristics of a derivative or freestanding instrument that is potentially settled in an entity’s own stock (with the exception of share-based payment awards within the scope of SFAS 123(R)). To meet the definition of “indexed to own stock,” an instrument’s contingent exercise provisions must not be based on (a) an observable market, other than the market for the issuer’s stock (if applicable), or (b) an observable index, other than an index calculated or measured solely by reference to the issuer’s own operations, and the variables that could affect the settlement amount must be inputs to the fair value of a “fixed-for-fixed” forward or option on equity shares. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008 and was adopted by the Company on January 1, 2009. The adoption of EITF No. 07-5 has not resulted in a material change to the classification or measurement of its financial instruments.

In December 2008, the EITF issued EITF Issue No. 08-7, Accounting for Defensive Intangible Assets (EITF 08-7). This issue clarifies the accounting for defensive assets, which are separately identifiable intangible assets acquired in an acquisition which an entity does not intend to actively use but does intend to prevent others from using. EITF 08-7 requires an acquirer to account for these assets as a separate unit of accounting, which should be amortized to expense over the period the asset diminishes in value. This issue is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, the Company adopted EITF 08-7 on January 1, 2009. The adoption of EITF No. 08-7 has not had a material impact on the consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP SFAS 141R-1 Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, (FSP SFAS 141R-1). This FSP amends and clarifies SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R), to require that an acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value of such an asset acquired or liability assumed cannot be determined, the acquirer should apply the provisions of SFAS 5, Accounting for Contingencies, to determine whether the contingency should be recognized at the acquisition date or after it. FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is after the beginning of the first annual reporting period beginning after December 15, 2008. Accordingly, the Company adopted EITF 08-7 effective January 1, 2009. The adoption of FSP SFAS 141R-1 has not had a material impact on the consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, which modify the other-than-temporary impairment guidance for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to the credit and noncredit components of impaired debt securities that are not expected to be sold. In addition, increased disclosures are required for both debt and equity securities regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. FSP FAS No. 115-2 and FAS No. 124-2 become effective for interim and annual reporting periods that end after June 15, 2009, and were adopted in our second quarter of 2009. The adoption of FSP FAS No. 115-2 and FAS No. 124-2 has not had a material impact on the consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP FAS No. 107-1 and APB Opinion No. 28-1, which require fair value disclosures for financial instruments that are not reflected in the consolidated Balance Sheets at fair value. Prior to the issuance of FSP FAS No. 107-1 and APB Opinion No. 28-1, the fair values of those assets and liabilities were disclosed only once each year. With the issuance of FSP FAS No. 107-1 and APB Opinion No. 28-1, we will now be required to disclose this information on a quarterly basis, providing quantitative and qualitative information about fair value estimates for all financial instruments not measured in the consolidated Balance Sheets at fair value. FSP FAS No. 107-1 and APB Opinion No. 28-1 become effective for interim reporting periods that end after June 15, 2009, and were adopted in our second quarter of 2009. The adoption of FSP FAS No. 107-1 and APB Opinion No. 28-1 has not had a material impact on the consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP FAS No. 157-4, which clarifies the methodology used to determine fair value when there is no active market or where the price inputs being used represent distressed sales. FSP FAS No. 157-4 also reaffirms the objective of fair value measurement, as stated in FAS No. 157, “Fair Value Measurements,” which is to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive. FSP FAS No. 157-4, which is applied prospectively, is effective for interim and annual reporting periods ending after June 15, 2009, and was adopted in our second quarter of 2009. The adoption of FSP FAS No. 157-4 has not had a material impact on the consolidated financial position, results of operations or cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 was issued in order to establish principles and requirements for reviewing and reporting subsequent events and requires disclosure of the date through which subsequent events are evaluated and whether the date corresponds with the time at which the financial statements were available for issue (as defined) or were issued. SFAS No. 165 is effective for interim reporting periods ending after June 15, 2009, and was adopted in our second quarter of 2009. In accordance with SFAS no. 165 it is the Company’s policy to review and report subsequent events up to the day prior to the issuance of the financial statements. The adoption of SFAS No. 165 has not had a material impact on the consolidated financial position, results of operations or cash flows.

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,” (SFAS 168). SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and establishes the FASB Accounting Standards Codification^TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. SFAS 168 becomes effective for the Company for the period ending September 30, 2009. Management has determined that the adoption of SFAS 168 will not have an impact on the Financial Statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” (SFAS 167). SFAS 167 amends FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51,” (FIN 46(R)) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 becomes effective for the Company on January 1, 2010. Management is currently evaluating the potential impact of SFAS 167 on the financial statements.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140,” (SFAS 166). SFAS 166 amends various provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a replacement of FASB Statement No. 125,” by removing the concept of a qualifying special-purpose entity and removes the exception from applying FIN 46(R) to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. SFAS 166 becomes effective for the Company on January 1, 2010. Management is currently evaluating the potential impact of SFAS 166 on the financial statements.

4. FAIR VALUE MEASUREMENTS

With the adoption of SFAS No. 157, beginning January 1, 2008, assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of the Company’s financial instruments including cash and cash equivalents, amounts receivable, and accounts payable the carrying values approximate fair value due to their short-term nature.

SFAS No. 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with SFAS No. 157, these inputs are summarized in the three broad levels listed below:

•		Level 1 —		Quoted prices in active markets for identical securities;
•		Level 2 —		Other significant observable inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities);
•		Level 3 —		Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability.

As quoted prices in active markets are not readily available, the Company obtains estimates for the fair value of financial instruments through independent pricing service providers.

In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to SFAS No. 157.

The Company invests its excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S. Government. The guidelines also specify that the financial instruments be issued by institutions with strong credit ratings. These securities are generally not collateralized and mature within one year.

A description of the valuation techniques applied to the Company’s marketable securities measured at fair value on a recurring basis follows.

Financial Instruments

Government Debt Securities

U.S. Government Securities. U.S. government securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. government securities are categorized in Level 1 of the fair value hierarchy.

U.S. Agency Securities. U.S. agency securities are comprised of two main categories consisting of callable and non-callable agency issued debt securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. Actively traded non-callable agency issued debt securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities are categorized in Level 2 of the fair value hierarchy.

Corporate and Other Debt

Corporate Bonds and Commercial Paper. The fair value of corporate bonds and commercial paper is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates based on collateral values as significant inputs. Corporate bonds and Commercial paper are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis as at June 30, 2009, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value:

(In thousands)		Level 1				Level 2				Level 3
Corporate debt securities		$	—			$	—			$	—
Government debt securities		$	—			$	1,006			$	—
Commercial paper		$	—			$	1,000			$	—
						$	2,006

Marketable securities as at June 30, 2009 consist of the following:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
(In thousands)		Cost				Gain				Loss				Fair Value
Corporate debt securities		$	—			$	—			$	—			$	—
Government debt securities		$	1,006			$	—			$	—			$	1,006
Commercial paper		$	1,000			$	—			$	—			$	1,000
		$	2,006											$	2,006

$500,000 of Commercial paper in the above tables are included in cash equivalents as the securities have maturities of 90 days or less at the time of purchase. The remaining securities all mature within one year of the balance sheet date and are included in short-term investments.

There were no significant realized or unrealized gains or losses on the sales of marketable securities in the six month periods ended June 30, 2009 or June 30, 2008, and no significant unrealized gains or losses are included in accumulated other comprehensive income as at June 30, 2009.

5. COMMON SHARES

[a] Authorized

11,019,930 authorized common voting share, par value of $0.001.

[b] Issued and Outstanding Shares

As at August 20, 2008, there were 118,801 common shares of OncoGenex Technologies (on a post-conversion basis) and 2,059,898 shares of common stock of Sonus outstanding. As part of the Arrangement (Note 2), Sonus agreed to issue 3,449,393 shares of common stock, after accounting for the elimination of resulting fractional shares, in exchange for all the common shares, preferred shares and convertible debentures of OncoGenex Technologies. As a result, all common shares of OncoGenex Technologies are now held by OncoGenex Pharmaceuticals, Inc. and have been eliminated on consolidation.

During the six month period ended June 30, 2009 the Company issued 7,646 common shares upon exercise of stock options (period ended June 30, 2008 – nil). The Company issues new shares to satisfy stock option exercises.

[c] Stock options

Stock Option Summary

As at June 30, 2009 the Company has reserved, pursuant to various plans, 886,297 common shares for issuance upon exercise of stock options by employees, directors, officers and consultants of the Company of which 138,154 are not currently subject to outstanding grants and are available for future grants.

Stock option transactions and the number of stock options outstanding are summarized below:

		Number
		of				Weighted
		Optioned				Average
		Common				Exercise
		Shares				Price
		#				$
Balance, December 31, 2008			723,143				4.88
Option grants			41,300				7.25
Option cancellations			(6,914	)			7.60
Option exercises			(7,646	)			4.24
Option expirations			(1,240	)			3.89
Option forfeitures			(500	)			3.00
Balance, June 30, 2009			748,143				5.00

On May 12, 2009, stock options to purchase 8,260 common shares of the Company were granted to each of the five non-executive members of the board of directors for a total grant of stock option to purchase 41,300 common shares of the Company. The options vest quarterly over one year. The total estimated fair value of these awards is $170,000 using the following assumptions:

Risk-free interest rates			1.68	%
Expected dividend yield			0	%
Expected life		4 years
Expected volatility			76	%

The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. The Company considers the use of the simplified method appropriate because of the lack of sufficient historical exercise data following the reverse takeover of Sonus. The computation of expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, as required under SFAS 123R, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest.

The results for the periods set forth below included share-based compensation expense in the following expense categories of the consolidated statements of operations:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands)		2009				2008				2009				2008
		$				$				$				$
Research and development			22				21				45				42
General and administrative			75				35				128				69
Total share-based compensation			97				56				173				111

As at June 30, 2009 and December 31, 2008 the total unrecognized compensation expense related to stock options granted is $736,000 and $740,000 respectively, which is expected to be recognized into expense over a period of approximately four years.

[d] Stock Warrants

At June 30, 2009, there were warrants outstanding to purchase 183,385 shares of common stock at exercise prices ranging from $74.70 to $79.56 per share and expiration dates ranging from August 2010 to October 2010.

[e] Loss per Common Share

Weighted average common shares outstanding for prior periods have been restated to reflect the change in capital structure resulting from the transaction with Sonus.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands except shares and per share amounts)		2009				2008				2009				2008
Numerator
Loss attributable to common shareholders as reported		$	4,563			$	2,948			$	6,972			$	5,381
Denominator
Weighted average number of common shares outstanding			5,550,547				118,801				5,548,369				118,801
Basic and diluted loss per common share		$	0.82			$	24.81			$	1.26			$	45.29

As of June 30, 2009 and December 31, 2008 a total of 931,528 and 906,528 options and warrants, respectively, have not been included in the calculation of potential common shares as their effect on diluted per share amounts would have been anti-dilutive.

6. SEVERANCE CHARGES AND OTHER RESTRUCTURING ACTIVITIES

As a requirement for the closing of the transaction, Sonus terminated the employment of two senior executives. Severance payable at the date of the transaction was $1,440,000 and has been accounted for in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” as part of the purchase price allocation (Note 2). The severance payable was settled following the completion of the transaction and the amount owing at June 30, 2009 and December 31, 2008 was nil.

On August 21, 2008, immediately following the completion of the Arrangement (note 2), the Company reduced workforce by approximately 49% in order to implement cost-savings measures to preserve cash while focusing on its highest potential product development programs. Severance payable at the date of the restructuring in connection with former employees of Sonus was $1,322,000 and has been accounted for in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” as part of the purchase price allocation (note 2). During 2008 the Company made payments totalling $1,186,000 and the amount owing at December 31, 2008 was $137,000. The Company estimates that all severance liabilities relating to transaction-related workforce reductions will be paid out by October 2009, and the amount owing at June 30, 2009 was $23,000.

Prior to the Arrangement, Sonus entered into a non-cancellable lease arrangement for office space located in Bothell, Washington, which is considered to be in excess of the Company’s current requirements. The Company is currently in the process of evaluating opportunities to exit or sublet portions of the leased space and recorded an initial restructuring charge of $2,084,000 on August 21, 2008 as part of the purchase price allocation (note 2). The liability is computed as the present value of the difference between the remaining lease payments due less the estimate of net sublease income and expenses and has been accounted for in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination”. This represents the Company’s best estimate of the fair value of the liability. Subsequent changes in the liability due to accretion, or changes in estimates of sublease assumptions, etc. will be recognized as adjustments to restructuring charges in future periods. During 2008, $362,000 was amortized into income, resulting in a remaining liability at December 31, 2008 of $1,722,000.

In June 2009 we revised our sublease income assumptions used to estimate the fair value of the excess lease facility liability. This change in estimate resulted in an increase in the fair value of our excess lease liability and a $494,000 expense recorded in June 2009 to reflect this change in estimate. The change in estimate, had a $0.09 impact on loss per common share for the both the three and six month periods ended June 30, 2009. The estimated fair value of the liability remaining at June 30, 2009 with respect to excess facilities is $1,689,000.

		Remaining								Amortization				Additional				Remaining
		Liability at				Payments				of excess				Liability				Liability at
(In thousands)		31-Dec-08				made				lease facility				Recorded				June 30, 2009
Employee severance included in accrued liabilities		$	137			$	114			$	—			$	—			$	23
Current portion of excess lease facility		$	632			$	—			$	(453	)		$	508			$	687
Long-term portion of excess lease facility		$	1,090			$	—			$	(74	)		$	(14	)		$	1,002

7. TAXES

Under FIN 48, the benefit of an uncertain tax position that is more likely than not of being sustained upon audit by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of the benefit of an uncertain tax position may be recognized if the position has less than a 50% likelihood of being sustained.

A reconciliation of the unrecognized tax benefits of uncertain tax positions for the quarter ended June 30, 2009 is as follows:

(In thousands)		$
Balance as of December 31, 2008			1,956
Additions based on tax positions related to the current year			125
Deductions based on tax positions related to the current year			(276	)
Balance as of June 30, 2009			1,805

As of June 30, 2009 unrecognized benefits of approximately $1,805,000, if recognized, would affect the Company’s effective tax rate.

8. COMMITMENTS AND CONTINGENCIES

Isis Pharmaceuticals Inc. and University of British Columbia

Pursuant to license agreements the Company has with the University of British Columbia (“UBC”) and Isis Pharmaceuticals Inc. (“Isis”), the Company is obligated to pay royalties on future product sales and milestone payments of up to $9.9 million upon the achievement of specified product development milestones. In addition, the Company is obligated to pay to UBC certain patent costs and annual license maintenance fees for the extent of the patent life of CAD $8,000 per year.

The UBC agreements have effective dates ranging from November 1, 2001 to April 5, 2005 and each agreement expires upon the later of 20 years from its effective date or the expiry of the last patent licensed thereunder, unless otherwise terminated.

Unless otherwise terminated, the Isis agreements for OGX-011 and OGX-427 will continue for each product until the later of 10 years after the date of the first commercial product sale, or the expiration of the last to expire of any patents required to be licensed in order to use or sell the product, unless OncoGenex Technologies abandons either OGX-011 or OGX-427 and Isis does not elect to unilaterally continue development. The Isis agreement for OGX-225 will continue into perpetuity unless OncoGenex Technologies abandons the product and Isis does not elect to unilaterally continue development.

Bayer HealthCare LLC

On August 7, 2008, Sonus completed an exclusive in-licensing agreement with Bayer HealthCare LLC (“Bayer”) for the right to develop, commercialize or sublicense a family of compounds known as caspase activators presently in preclinical research. Under terms of the agreement, Sonus was granted exclusive rights to develop two core compounds for all prophylactic and therapeutic uses in humans. Additionally, Sonus was granted rights to all other non-core compounds covered under the patents for use in oncology.

Under the terms of the agreement, Bayer received an upfront license fee of $450,000. OncoGenex will make annual payments to Bayer on the anniversary date (“Anniversary Payments”), with an initial payment of $100,000 paid in June 2009. The payments will increase by $25,000 each year until the initiation of the first phase 3 clinical trial, at which point the Anniversary Payments reset to $100,000 each year and increase by $25,000 until the Company achieves either the first New Drug Application filing in the United States or the European Union. OncoGenex is obligated to pay royalties ranging from 3.5% to 7.5% of net future product sales and aggregate payments of up to $14,000,000 for clinical development and regulatory milestones. No milestone payments are triggered prior to the initiation of a phase 3 clinical trial. OncoGenex has the option to terminate this contract upon 60 days written notice to Bayer.

Lease Arrangements

The Company has an operating lease agreement for office space in Vancouver, Canada. The lease was set to expire in September 2009, but was renewed in June 2009 for an additional 18 months. The lease is now set to expire in March 2011.

Future minimum annual lease payments under the Vancouver lease are as follows:

		$
		(In thousands)
2009			80
2010			163
2011			41
Total			284

In November 2006, prior to the Arrangement (note 2), Sonus entered into a non-cancellable operating lease agreement for office space in Bothell, Washington, expiring in 2017 and office equipment under two non-cancellable operating leases which expire in 2009 and 2010. In connection with the new lease, Sonus was required to provide a cash security deposit of approximately $497,000, which is included in Other Long Term Assets. In addition, the lease stipulates the Company must issue a standby letter of credit for approximately $500,000 which is expected to be issued during 2009. The Company is currently in the process of evaluating opportunities to exit or sublet portions of the leased space and has recorded a liability in the excess facilities lease charge of $1,689,000 as at June 30, 2009 (Note 6).

If the Company is unable to exit or sublet portions of this leased space, the future minimum annual lease payments including excess facilities are as follows:

		$
		(In thousands)
2009			969
2010			1,995
2011			2,055
2012			2,117
2013			2,180
remainder			9,395
Total			18,711

Consolidated rent expense for the periods ended June 30, 2009 and 2008 was $1,130,000 and $122,000 respectively.

Guarantees and Indemnifications

In November 2002 the FASB issued FASB Interpretation No. 45, (“FIN 45”) Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations it assumes under that guarantee.

OncoGenex indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is equal to the officer’s or director’s lifetime.

The maximum amount of potential future indemnification is unlimited; however, we have obtained director and officer insurance that limits our exposure and may enable it to recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations as of June 30, 2009.

We have certain agreements with certain organizations with which we do business that contain indemnification provisions pursuant to which we typically agree to indemnify the party against certain types of third-party claims. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for or expenses related to indemnification issues for any period presented.

9. RELATED PARTY TRANSACTIONS

The Company incurred consulting fees of $53,000 for the six month period ended June 30, 2008 respectively, payable to a former director. There were no related party transactions during the period ended June 30, 2009, and no amounts were included in accounts payable and accrued liabilities as at June 30, 2009. All transactions were recorded at their exchange amounts.

10. COMPREHENSIVE INCOME (LOSS)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands)		2009				2008				2009				2008
		$				$				$				$
Loss for the period			4,563				2,168				6,972				3,825
Reclassification of unrealized gain on marketable securities			—				—				—				1
Unrealized loss on cash equivalents and marketable securities			1				—				1				1
Unrealized loss (gain) on foreign exchange			—				(43	)			—				68
Comprehensive loss			4,564				2,125				6,973				3,895

11. SUBSEQUENT EVENTS

On July 24, 2009, the Company completed a registered direct offering with certain institutional investors covering the sale of 475,000 shares of common stock at a price of $20 per share under a shelf registration statement on Form S-3 (No. 333-160251) that was declared effective on July 17, 2009. The transaction provided net proceeds of approximately $9.4 million to OncoGenex after deducting costs associated with the offering.

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

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about the anticipated benefits of the Arrangement completed on August 21, 2008 between Sonus and OncoGenex Technologies, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management and other statements that are not historical facts. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “intend,” or similar expressions in this document or in documents incorporated by reference in this document. We intend that such forward-looking statements be subject to the safe harbors created thereby. Examples of these forward-looking statements include, but are not limited to:

	•		our anticipated future capital requirements and the terms of any capital financing agreements;
	•		progress and preliminary and future results of clinical trials;
	•		anticipated regulatory filings, requirements and future clinical trials;
	•		timing and amount of future contractual payments, product revenue and operating expenses; and
	•		market acceptance of our products and the estimated potential size of these markets.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements:

	•		future capital requirements and uncertainty of obtaining additional funding through corporate partnerships, debt or equity financings;
	•		dependence on the development and commercialization of products;
	•		the risk that results in humans may not be indicative of results in future studies;
	•		the risk that results of research and preclinical studies may not be indicative of results in humans;
	•		uncertainty relating to the timing and results of clinical trials;

	•		uncertainties regarding the safety and effectiveness of the Company’s products and technologies;
	•		the timing, expense and uncertainty associated with the development and regulatory approval process for products;
	•		uncertainties regarding the Company’s future operating results, and the risk that the Company’s products will not obtain the requisite regulatory approvals to commercialize its products or that the future sales of the Company’s products may be less than expected;
	•		acceptance of our products by the medical community;
	•		our ability to build out our product candidate pipeline through product in-licensing or acquisition activities;
	•		the Company’s dependence on key employees;
	•		the uncertainty associated with exiting or subleasing our excess office and laboratory space;
	•		general competitive conditions within the drug development and pharmaceutical industry;
	•		the potential inability to integrate and realize benefits from the Arrangement;
	•		the reliance on third parties who license intellectual property rights to the Company to comply with the terms of such agreements and to enforce, prosecute and defend such intellectual property rights;
	•		the potential for product liability issues and related litigation;
	•		the potential for claims arising from the use of hazardous materials in our business;
	•		proper management of our operations will be critical to the success of the Company;
	•		the potential inability to successfully protect and enforce our intellectual property rights;
	•		the impact of current, pending or future legislation, regulations and legal actions in the United States, Canada and elsewhere affecting the pharmaceutical and healthcare industries;
	•		currency fluctuation in the Company’s primary markets;
	•		volatility in the value of our common stock;
	•		fluctuations in our operating results;
	•		history of operating losses and uncertainty of future financial results; and
	•		general economic conditions.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or, in the case of documents referred to or incorporated by reference, the date of those documents.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

MD&A Overview

In Management’s Discussion and Analysis of Financial Condition and Results of Operations we explain the general financial condition and the results of operations for our Company, including:

	•		an overview of our business;
	•		results of operations and why those results are different from the comparative period in the prior year; and
	•		capital resources we currently have, our need for additional capital and possible sources of additional funding for future capital requirements.

Arrangement Agreement

As discussed in the notes to the financial statements above, during 2008, the Company completed the Arrangement with OncoGenex Technologies and, in connection therewith, effected a one-for-eighteen reverse stock split. All information in this report relating to the number of shares, price per share, and per share amounts of common stock are presented on a post-reverse stock split basis. For more information concerning the Arrangement, see the discussion of the Arrangement in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2008 Annual Report on Form 10-K filed with the SEC on March 11, 2009 and note 2 to the financial statements included in this 10-Q, both of which are incorporated by reference herein.

Overview of the Company

OncoGenex is a biopharmaceutical company committed to the development and commercialization of new therapies that address unmet needs in the treatment of cancer. The Company has five product candidates in its pipeline, namely, OGX-011, OGX-427, OGX-225, SN2310 and CSP-9222, with each product candidate having a distinct mechanism of action and representing a unique opportunity for cancer drug development.

OncoGenex’ product candidates OGX-011, OGX-427 and OGX-225 focus on mechanisms of treatment resistance in cancer patients and are designed to address treatment resistance by blocking the production of specific proteins that OncoGenex believes promote survival of tumor cells and are over-produced in response to a variety of cancer treatments. OncoGenex’ aim in targeting these particular proteins is to disable the tumor cell’s adaptive defenses and thereby render the tumor cells more susceptible to attack with a variety of cancer therapies, including chemotherapy, which OncoGenex believes will increase survival time and improve the quality of life for cancer patients. Product candidate SN2310 is a novel camptothecin for the treatment of cancer. Camptothecins are potent anticancer agents that belong to the family of drugs called topoisomerase I inhibitors that bind reversibly to the TOPO-I-DNA complex causing breaks in the DNA strands during replication resulting in cell death. Product candidate CSP-9222 is the lead compound from a family of compounds demonstrating activation of programmed cell death in pre-clinical models that have been in-licensed from Bayer HealthCare LLC.

Product Candidate OGX-011

We have designed two phase 3 clinical trials to evaluate the clinical benefit of OGX- 011 in metastatic castrate resistant prostate cancer (“CRPC”). OncoGenex believes that two phase 3 trials will be required for initial product marketing approval. The two clinical trial designs are:

•

Evaluating a survival benefit for OGX-011 in combination with first-line docetaxel treatment in approximately 800 men with CRPC; and

•

Evaluating a durable pain palliation benefit for OGX-011 in combination with docetaxel as second-line chemotherapy in approximately 300 men with CRPC.

OncoGenex intends to conduct the above phase 3 trials with OGX-011 in metastatic CRPC, subject to the receipt of additional funding.

OGX-011 has received Fast Track designation from the U.S. Food & Drug Administration (“FDA”) for the treatment of progressive metastatic prostate cancer in combination with docetaxel. The FDA has agreed on the design of two phase 3 registration trials, via the Special Protocol Assessment (“SPA”) process. One trial design investigates overall survival as the primary endpoint for OGX-011 in combination with first-line chemotherapy, whereas the other trial design investigates pain palliation as the primary endpoint for OGX-011 in combination with second-line chemotherapy.

Final results of a randomized phase 2 trial evaluating the benefit of combining OGX-011 with first-line docetaxel chemotherapy were presented during an oral presentation at the American Society of Clinical Oncology (ASCO) 2009 Annual Meeting. Analyses indicating a survival benefit in patients treated with OGX-011 in combination with first-line docetaxel compared to docetaxel alone, the latter of which being the current standard care for patients with advanced, progressive metastatic prostate cancer, is described below:

•

The median overall survival in patients with advanced metastatic prostate cancer who were treated with OGX-011 plus docetaxel in a randomized phase 2 trial was 23.8 months compared to 16.9 months for patients treated with docetaxel alone, indicating a 6.9 month survival advantage in the OGX-011 arm;

•

The unadjusted hazard ratio (HR), unadjusted hazard ratio (HR), a measure used to compare the death rates between treatment groups, was 0.61, representing a 39% lower rate of death for patients treated with OGX-011; and

•

A prospectively defined multivariate analysis indicated that the significant predictors of overall survival were treatment arm, performance status and presence of metastases other than in bone or lymph nodes. Patients treated with OGX-011 had a rate of death 51% lower than patients treated with docetaxel alone (HR=0.49; p=0.012). Additional exploratory analyses found that the lower rate of death was associated with the effect of OGX-011 treatment even when varying amounts of chemotherapy were administered (i.e. OGX-011 treatment resulted in a lower rate of death when compared to the control arm for patients receiving 6 or less cycles of chemotherapy as well as for patients receiving 10 cycles of chemotherapy).

OGX-011 treatment was well tolerated in combination with docetaxel. There was an increase in incidence of mild fever, chills and creatinine levels (a laboratory measure for reduced kidney function) and a moderate to significant decrease in circulating lymphocytes in the blood (another laboratory measure) without any increase in infection rate compared to the docetaxel arm. Due to the final results of this randomized phase 2 trial, the phase 3 registration trial will evaluate the overall survival benefit of OGX-011 in patients treated with first-line chemotherapy.

Durable pain palliation defined as pain palliation of 12 weeks or greater has been observed in another phase 2 trial evaluating patients with metastatic CRPC who progressed while receiving, or within 6 months of completing, first-line docetaxel treatment. In this trial, 44% of patients who were retreated with docetaxel as second-line treatment in combination with OGX-011 had durable pain palliation. This is favorable even when compared to the 35% pain responses of 3 weeks or greater observed in the phase 3 study registering docetaxel as first-line chemotherapy in patients with CRPC. Due to the results of this phase 2 trial, the other phase 3 registration trial will evaluate the durable pain palliation benefit of OGX-011 in patients treated with second-line chemotherapy.

Product Candidate OGX-427

A phase 1 trial has evaluated 41 patients with a variety of cancers, with enrollment ongoing. OGX-427 was first evaluated as a single agent in a dose escalation manner up to 1000mg OGX-427. A maximum tolerated dose was not identified up to and including the 1000mg dose of OGX-427 monotherapy. Subsequently, as defined by the protocol, an 800mg dose of OGX-427 in combination with docetaxel was evaluated, to be followed by, a 1000mg OGX-427 plus docetaxel. OGX-427 is administered as three loading doses within the first nine days and then continued weekly, with three weeks defined as a treatment cycle, until disease progression or toxicity. In those groups receiving OGX-427 in combination with docetaxel, 75mg/M2 docetaxel was administered on day 1 of every 3-week cycle starting after completion of the OGX-427 loading doses.

Preliminary results of this phase 1 trial were presented during an oral presentation at the American Society of Clinical Oncology (ASCO) 2009 Annual Meeting. Patients enrolled had a diagnosis of breast, ovarian, prostate or non-small cell lung cancer and most had failed multiple prior chemotherapy treatments. A median of two cycles (range of one to eight cycles) was administered.

OGX-427 treatment was well tolerated as a monotherapy. No evidence of altered cardiac activity was observed. A majority of adverse events were mild and mainly occurred during the loading doses. Adverse events consisted of chills, itching and fatigue in over one-third of patients. There was a trend for increasing incidence of some mild adverse events with escalating OGX-427 doses. For example, 33% of patients at the 200mg dose compared to 67% of patients at the 1000mg dose had mild adverse events during the loading doses. The half-life of OGX-427 in the blood remained constant, although there appeared to be an increase in maximum blood levels and a corresponding decease in blood clearance of OGX-427 as doses were escalated.

The combination of 800mg OGX-427 with docetaxel was also well tolerated and escalation to 1000mg OGX-427 with docetaxel will be evaluated next.

Circulating tumor cells (CTCs), an emerging metric to assess treatment effect, was evaluated at baseline before treatment and during treatment. Both total and Hsp27-positive CTCs were evaluated. Declines of 50% or greater in both total and Hsp27-positive CTCs were observed in over one-half of the patients in each cohort and in each cancer category. Declines in Hsp27 CTCs to 5 or less cells occurred in 27% of patients who had greater than 5 CTCs at baseline. Reduction in tumor markers defined as declines of prostate specific antigen, or PSA, levels in prostate cancer or CA-125 levels in ovarian cancer were also observed. A reduction in PSA level was observed in 7 of 20 patients (35%) with prostate cancer and a reduction in CA-125 levels was observed in 3 of 5 patients (60%) with ovarian cancer.

Product Candidates OGX-225, SN2310 and CSP-9222

SN2310 was evaluated in a phase 1 clinical trial to evaluate safety in patients with advanced cancer who have received on average three to five prior chemotherapy treatments. SN2310 has been administered to 26 patients with various types of cancer in a phase 1 clinical trial. The phase 1 clinical trial has been completed and the dose-limiting toxicity that defined a maximum tolerated dose in this heavily pretreated patient population has been determined. No additional trials for SN2310 will be initiated prior to attaining additional funding through, among other things, executing a partnership or collaboration agreement with a third party to fund the development of OGX-011 or the licensing or sale of certain of our product candidates.

OGX-225, an inhibitor of insulin growth factor binding proteins 2 and 5, and CSP-9222 are in pre-clinical development.

Revenues

OncoGenex has not generated any revenues from the sale of its products to date, and it does not expect to generate any revenues from licensing or product sales unless and until it executes a partnership or collaboration arrangement or is able to commercialize its product candidates itself.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of costs for: clinical trials; materials and supplies; facilities; personnel, including salaries and benefits; regulatory activities; pre-clinical studies; licensing and intellectual property; and allocations of other research and development-related costs. External research and development expenses include fees paid to universities, hospitals and other entities that conduct certain research and development activities and that manufacture OncoGenex’ product candidates for use in its clinical trials. OncoGenex expects its research and development expenses to increase significantly in the future as it continues to develop its product candidates. Currently, OncoGenex manages its clinical trials through independent medical investigators at their sites and at hospitals.

A majority of the Company’s expenditures to date have been related to the development of OGX-011.

Until July 2, 2008, OGX-011 was being co-developed with Isis and R&D expenses for OGX-011 were shared on the basis of 65% OncoGenex and 35% Isis. On July 2, 2008, OncoGenex and Isis amended their agreement to provide for unilateral development of OGX-011 by OncoGenex.

Several of the Company’s clinical trials have been supported by grant funding which was received directly by the hospitals and/or clinical investigators conducting the clinical trials allowing OncoGenex to complete these clinical trials with minimal expense.

Since the Company’s drug candidates are in the early stage of development, we cannot estimate completion dates for development activities or when we might receive material net cash inflows from our research and development projects.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of salaries and related costs for OncoGenex’ personnel in executive, business development, human resources, external communications, finance and other administrative functions, as well as consulting costs, including market research and business consulting. Other costs include professional fees for legal and accounting services, insurance and facility costs. OncoGenex believes that G&A resources are sufficient to carry on existing development activities. If we are successful in obtaining additional funding and initiating a phase 3 clinical trial, OncoGenex anticipates that G&A expenses will increase significantly in the future as it continues to expand its operating activities.

Restructuring Activities

As discussed above in the notes to the financial statements, in connection with the closing of the Arrangement, Sonus terminated the employment of two senior executives and reduced its workforce. The severance payable to the terminated executives was settled following the completion of the transaction and the amount owing at June 30, 2009 was nil. The Company estimates that all severance liabilities relating to transaction-related workforce reductions will be paid out by October 2009, and the amount owing at June 30, 2009 was $23,000.

Results of Operations

As discussed above, on August 21, 2008, Sonus completed the Arrangement with OncoGenex Technologies, whereby Sonus acquired all of the outstanding preferred shares, common shares and convertible debentures of OncoGenex Technologies. The consolidated financial statements reflect the Arrangement as a reverse acquisition, whereby OncoGenex Technologies is deemed to be the acquiring entity from an accounting perspective. The consolidated results of operations of the Company include the results of operations of the combined Company for the full three and six month periods ended June 30, 2009. The consolidated results of operations for the three and six month periods ended June 30, 2008 include only the consolidated results of operations of OncoGenex Technologies and do not include historical results of Sonus. This treatment and presentation is in accordance with SFAS 141, “Business Combinations”. Proforma results are included in note 2 to the financial statements.

Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008

R&D expenses for the three months ended June 30, 2009 increased to $3.6 million from $1.1 million for the three months ended June 30, 2008, due mainly to the purchase of OGX-011 drug compound from Isis, payments made to Bayer in relation to the Caspase license, costs associated with the development of OGX-427 and an increase in employee expenses and facility costs resulting from the reverse takeover of Sonus. Also included in the three months ended June 30, 2008 was a Scientific Research and Development (“SRED”) claim of $0.2 million which offset R&D expenses in the second quarter of 2008. The SRED program is a Canadian federal tax incentive program that encourages Canadian businesses to conduct research and development in Canada. Since OncoGenex Technologies became an affiliate of a public company as a result of the Arrangement, SRED claims can now only be applied against taxes payable.

G&A expenses for the three months ended June 30, 2009 increased to $1.0 million from $0.6 million for the three months ended June 30, 2008, due mainly to higher employee expenses and increased costs associated with operating as a public company.

Interest income for the three months ended June 30, 2009 decreased to $3 thousand from $10 thousand for the three months ended June 30, 2008.

Other for the three months ended June 30, 2009 increased to $31 thousand in income from $223 thousand in expense for the three months ended June 30, 2008. The income earned in 2009 was due to the gains on sales of equipment and foreign exchange gains, as compared to a foreign exchange losses and convertible debenture interest in the 2008 period.

Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008

R&D expenses for the six months ended June 30, 2009 increased to $5.3 million from $2.0 million for the six months ended June 30, 2008, due mainly to the purchase of OGX-011 drug compound from Isis, payments made to Bayer in relation to the CSP-9222 license, costs associated with the development of OGX-427, an increase in employee expenses and higher facility costs resulting from the reverse takeover of Sonus. Also included in the six months ended June 30, 2008 was a SRED claim of $0.5 million which offset R&D expenses in the period. Since OncoGenex Technologies became an affiliate of a public company as a result of the Arrangement, SRED claims can now only be applied against taxes payable.

G&A expenses for the six months ended June 30, 2009 increased to $1.8 million from $1.2 million for the six months ended June 30, 2008, due mainly to higher employee expenses and increased costs associated with operating as a public company.

Interest income for the six months ended June 30, 2009 decreased to $36 thousand from $91 thousand for the six months ended June 30, 2008. Of the $91 thousand in interest for the 2008 period, $60 thousand related to interest received from the Canada Revenue Agency in relation to the Company’s 2006 Scientific Research and Development claim, while the 2009 amount includes only interest earned on cash and cash equivalents and marketable securities.

Other for the six months ended June 30, 2009 increased to $55 thousand in income from $300 thousand in expense for the six months ended June 30, 2008. The income earned in 2009 was due to the gains on sales of equipment and foreign exchange gains, as compared to a foreign exchange losses and convertible debenture interest in the 2008 period.

Liquidity and Capital Resources

OncoGenex has incurred cumulative losses attributable to common shareholders of $55 million since the inception of OncoGenex Technologies through June 30, 2009. OncoGenex does not expect to generate revenue from product candidates for several years. Prior to the Arrangement, Sonus funded its operations through private and public offerings of common stock, and OncoGenex Technologies funded its operations primarily through the private placement of its preferred shares. Cash, cash equivalents and short term investments of $20.3 million were realized in August 2008 as a result of the Arrangement.

As at June 30, 2009, OncoGenex had cash, cash equivalents, and short-term investments of $5.7 million in the aggregate as compared to cash, cash equivalents and short-term investments $12.4 million as at December 31, 2008. In July 2009, we received approximately $9.4 million in net proceeds, after deducting offering expenses, for the sale of 475,000 shares of our common stock at a price of $20 per share through a registered direct offering under a shelf registration statement on Form S-3 (No. 333-160251) that was declared effective on July 17, 2009. As at June 30, 2009, OncoGenex does not have any borrowing or credit facilities available to it.

Cash Flows

Cash Used in Operations

For the six months ended June 30, 2009 and 2008, net cash used in operations was $6.5 million and $2.0 million respectively. This increase in cash used in operations in the six months ended June 30, 2009 compared to the same period in 2008 was attributable primarily to increased R&D expenses associated with personnel and facilities assumed in the reverse takeover of Sonus, the purchase of OGX-011 drug compound from Isis, and payments made to Bayer in relation to the Caspase license.

Cash Provided by Financing Activities

For the six months ended June 30, 2009 and 2008, net cash provided by financing activities was $35 thousand and nil respectively. All net cash provided by financing activities in the six months ended June 30, 2009 was due to the result of proceeds from the issuance of common shares on stock option exercises. There was no cash provided by, or used by financing activities for, the six months ended June 30, 2008.

Cash Used/Provided by Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2009 and 2008 was $3.3 million and $12 thousand, respectively. Net cash provided by investing activities in the six months ended June 30, 2009 and 2008 was due to transactions involving marketable securities in the normal course of business. The related maturities and sales of those investments provide working capital on an as-needed basis.

Operating Capital and Capital Expenditure Requirements

OncoGenex believes that its cash, cash equivalents and short-term investments will be sufficient to fund its currently planned operations at least through 2010 including:

	•		continuing survival follow-up for previously announced phase 2 clinical trials of OGX-011;
	•		completion of its phase 1 clinical trial evaluating OGX-427 as a monotherapy in patients with solid tumors;
	•		initiation of an investigator-sponsored phase 1 clinical trial evaluating OGX-427 treatment in patient with bladder cancer; and
	•		working capital needs, capital expenditures and general corporate purposes.

We require additional funding to support our planned operations, including our planned phase 3 clinical trials of OGX-011 in patients with CRPC. We may seek additional funding through, among other things, executing a partnership or collaboration agreement with a third party that has sufficient resources to fund the development of our product candidates or the licensing or sale of certain of our product candidates.

Our future capital requirements depend on many factors including:

	•		our ability to obtain additional funding through executing a partnership or collaboration agreement with a third party that has sufficient resources to fund the development of our product candidates or the licensing or sale of certain of our product candidates, or through private or public offerings of our equity securities or debt financings;
	•		timing and costs of clinical trials, preclinical development and regulatory approvals;
	•		timing and cost of drug discovery and research and development;
	•		entering into new collaborative or product license agreements for products in our pipeline; and
	•		costs related to obtaining, defending and enforcing patents.

There can be no assurance that we will be able to obtain additional funding on terms favorable to us, or at all. Our ability to obtain financing is particularly uncertain due to the current widespread economic downturn. If we are unable to obtain sufficient funds to satisfy our cash requirements within the required timeframe on terms favorable to us, we may be forced to curtail development activities and other operations or dispose of assets. Such events would materially and adversely affect our financial position and results of operations. In the event that such steps are not sufficient, or we believe that they will not be sufficient, we may be required to discontinue our operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements at June 30, 2009.

Inflation

We not believe that inflation has had a material impact on our business and operating results during the periods presented.

Contingencies and Commitments

We previously disclosed certain contractual obligations and contingencies and commitments relevant to the Company within the financial statements and Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on March 11, 2009. There have been no significant changes to our “Contractual Obligations” table in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2008 Form 10-K. For more information regarding our current contingencies and commitments, see Note 8 to the financial statements included above, which is incorporated by reference herein.

Material Changes in Financial Condition

		June 30,				December 31,
(In thousands)		2009				2008
		$				$
Total assets			7,383				14,790
Total liabilities			3,445				4,083
Shareholders’ equity			3,938				10,707

The decrease in assets from December 31, 2008 primarily relates to decreased cash, cash equivalents and marketable securities as these assets have been used to fund operations. The decrease in liabilities from December 31, 2008 relates predominantly to the payment in 2009 of significant manufacturing costs included in Accounts Payable at year end.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our 2008 Form 10-K. Since the date of our 2008 Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

New Accounting Standards

See Note 3, “Accounting Policies,” of the consolidated financial statements for information related to the adoption of new accounting standards in 2009, none of which had a material impact on our financial statements, and the future adoption of recently issued accounting standards, which we do not expect to have a material impact on our financial statements.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We invest our cash in a variety of financial instruments, primarily in short-term bank deposits, money market funds, and domestic and foreign commercial paper and government securities. These investments are denominated in U.S. dollars and are subject to interest rate risk, and could decline in value if interest rates fluctuate. Our investment portfolio includes only marketable securities with active secondary or resale markets to help ensure portfolio liquidity. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. For example, if market rates hypothetically increase immediately and uniformly by 100 basis points from levels at June 30, 2009, the decline in the fair value of our investment portfolio would not be material.

Foreign Currency Exchange Risk

We are exposed to risks associated with foreign currency transactions on certain contracts and payroll expenses related to our Canadian subsidiary, OncoGenex Technologies, denominated in Canadian dollars and we have not hedged these amounts. As our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. Accordingly, changes in the value of the U.S. dollar relative to the Canadian dollar might have an adverse effect on our reported results of operations and financial condition, and fluctuations in exchange rates might harm our reported results and accounts from period to period.

Item 4.		Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in the Company’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

During the quarter ended June 30, 2009 the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

The Company has not made any changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A.		Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on March 11, 2009, which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in that report.

Item 4.		Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Stockholders was held on May 12, 2009. At the Annual Meeting, two matters were submitted to a vote of security holders.

Each director nominated and the other proposal submitted to a vote passed and the voting outcome of each proposal was as follows:

1. Election of the following six (6) directors to serve until the next Annual Meeting of Stockholders or until their successors are elected and have qualified to serve as directors:

Nominee		For				Withheld
Patrick R. Brady			3,456,247				75,189
Michelle G. Burris			3,449,858				81,578
Neil Clendeninn			3,449,586				81,850
Scott Cormack			3,461,508				69,928
Michael A. Martino			2,430,405				1,101,031
Dwight Winstead			3,448,590				82,846

2. Ratification of the appointment of Ernst & Young LLP as the Company’s independent auditor for the fiscal year ending December 31, 2009:

For: 3,522,136		Against: 5,048		Abstain: 4,251

Item 6.		Exhibits

Exhibit
Number				Description
	2.1	(1)		Arrangement Agreement between the Company and OncoGenex Technologies Inc. dated May 27, 2008†
	2.2	(2)		First Amendment to Arrangement Agreement between the Company and OncoGenex Technologies Inc. dated August 11, 2008
	2.3	(2)		Second Amendment to Arrangement Agreement between the Company and OncoGenex Technologies Inc. dated August 15, 2008
	3.1	(3)		Amended and Restated Certificate of Incorporation (As Amended Through October 17, 1995)
	3.2	(4)		Certificate of Amendment to Certificate of Incorporation filed on May 6, 1999
	3.3	(5)		Certificate of Correction filed on March 9, 2009 to Certificate of Amendment filed on May 6, 1999
	3.4	(6)		Certificate of Amendment to Certificate of Incorporation filed on May 7, 2004
	3.5	(5)		Certificate of Correction filed on March 9, 2009 to Certificate of Amendment filed on May 7, 2004
	3.6	(2)		Certificate of Amendment to Certificate of Incorporation filed on August 20, 2008
	3.7	(7)		Third Amended and Restated Bylaws of Oncogenex Pharmaceuticals, Inc.
	4.1	(2)		Specimen Certificate of Common Stock
	4.2	(8)		Amended and Restated Rights Agreement dated as of July 24, 2002 between the Company and U.S. Stock Transfer Corporation
	4.3	(9)		First Amendment to Amended and Restated Rights Agreement dated as of October 17, 2005 between the Company and U.S. Stock Transfer Corporation
	4.4	(10)		Second Amendment to Amended and Restated Rights Agreement dated as of August 10, 2006 between the Company and U.S. Stock Transfer Corporation
	4.5	(11)		Third Amendment to Amended and Restated Rights Agreement dated May 27, 2008 between the Company and Computershare Trust Company, N.A.
	4.6	(1)		Form of Escrow Agreement between the Company, Computershare Trust Company of Canada and former shareholders and debentureholders of OncoGenex Technologies Inc.
	4.7	(1)		Form of OncoGenex Voting Agreement
	4.8	(1)		Form of Sonus Voting Agreement
	10.1	(12)		Sonus Pharmaceuticals, Inc. Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan — 1991 (the “1991 Plan”), as amended
	10.2	(12)		Form of Incentive Option Agreement (pertaining to the 1991 Plan)
	10.3	(12)		Form of Sonus Pharmaceuticals, Inc. Nonqualified Stock Option Agreement under the 1991 Plan
	10.4	(13)		Sonus Pharmaceuticals, Inc. 1999 Nonqualified Stock Incentive Plan (the “1999 Plan”)
	10.5	(13)		Form of Sonus Pharmaceuticals, Inc. Nonqualified Stock Option Agreement under the 1999 Plan
	10.6	(13)		Form of Sonus Pharmaceuticals, Inc. Restricted Stock Purchase Agreement under the 1999 Plan
	10.7	(14)		Sonus Pharmaceuticals, Inc. 2000 Stock Incentive Plan (the “2000 Plan”)
	10.8	(15)		First Amendment to Sonus Pharmaceuticals, Inc. 2000 Plan
	10.9	(14)		Form of Sonus Pharmaceuticals, Inc. Stock Option Agreement (pertaining to the 2000 Plan)
	10.10	(16)		Sonus Pharmaceuticals, Inc. 2007 Performance Incentive Plan (the “2007 Plan”)
	10.11	(17)		Form of Sonus Pharmaceuticals, Inc. Stock Option Agreement (pertaining to the 2007 Plan)

Exhibit
Number				Description
	10.12	(17)		Form of Sonus Pharmaceuticals, Inc. Restricted Stock Purchase Agreement under the 2007 Plan
	10.13	(18)		OncoGenex Technologies Inc. Amended and Restated Stock Option Plan
	10.14	(19)		Stock Option Assumption, Amending and Confirmation Agreement dated as of August 21, 2008 between the Company and OncoGenex Technologies Inc.
	10.15	(20)		OncoGenex Pharmaceuticals, Inc. Short Term Incentive Awards Program
	10.16	(20)		Agreement and Consent Form (related to the Short Term Incentive Awards Program)
	10.17	(20)		Director Compensation Policy
	10.18	(12)		Form of Indemnification Agreement for Officers and Directors of the Company
	10.19	(18)		Form of Indemnification Agreement between OncoGenex Technologies Inc. and each of Scott Cormack, Stephen Anderson and Cindy Jacobs
	10.20	(18)		Form of Indemnification Agreement between OncoGenex Technologies Inc. and Neil Clendeninn
	10.21	(21)		Severance/Change in Control Agreement dated January 11, 2008 between the Company and Michael Martino
	10.22	(2)		Executive Termination Agreement and General Release dated August 21, 2008 between the Company and Michael Martino
	10.23	(21)		Severance/Change in Control Agreement dated January 11, 2008 between the Company and Alan Fuhrman
	10.24	(2)		Executive Termination Agreement and General Release dated August 21, 2008 between the Company and Alan Fuhrman
	10.25	(18)		Employment Agreement between OncoGenex Technologies Inc. and Scott Cormack dated as of December 21, 2001, and Employment Amending Agreement dated as of August 10, 2005
	10.26	(22)		Employment Agreement between OncoGenex Technologies Inc. and Stephen Anderson dated as of January 9, 2006*
	10.27	(2)		Employment Amending Agreement dated June 28, 2007 between OncoGenex Technologies Inc. and Stephen Anderson
	10.28	(22)		Employment Agreement between OncoGenex, Inc. and Cindy Jacobs dated as of September 12, 2005*
	10.29	(23)		Securities Purchase Agreement dated as of August 15, 2005 by and among the Company and the investors named therein, together with their permitted transferees (“Securities Purchase Agreement”)
	10.30	(23)		Form of Purchase Warrant related to the Securities Purchase Agreement
	10.31	(24)		Form of Purchase Warrant issued to Schering AG
	10.32	(23)		Registration Rights Agreement dated as of August 15, 2005 by and among the Company and the investors named therein
	10.33	(25)		Lease by and between BMR-217th Place LLC and the Company dated as of November 21, 2006
	10.34	(26)		First Amendment to Lease by and between BMR-217th Place LLC and the Company dated as of August 17, 2007
	10.35	(27)		Second Amendment to Lease by and between BMR-217th Place LLC and the Company dated as of January 28, 2008
	10.36	(6)		Amended and Restated License Agreement effective as of July 2, 2008 by and between OncoGenex Technologies Inc. and Isis Pharmaceuticals, Inc. (OGX-011)*
	10.37	(22)		License Agreement between OncoGenex Technologies Inc. and the University of British Columbia effective as of November 1, 2001, and Amending Agreement dated as of August 30, 2006 (OGX-011)*

Exhibit
Number				Description
	10.38	(2)		Second Amending Agreement and Consent as of August 7, 2008 between The University of British Columbia and OncoGenex Technologies Inc. (OGX-011)
	10.39	(22)		Collaboration and License Agreement between OncoGenex Technologies Inc. and Isis Pharmaceuticals, Inc. effective as of January 5, 2005 (OGX-427)*
	10.40	(22)		License Agreement between OncoGenex Technologies Inc. and the University of British Columbia effective as of April 5, 2005, and Amending Agreement dated as of August 30, 2006 (OGX-427)*
	10.41	(2)		Second Amending Agreement as of August 7, 2008 between The University of British Columbia and OncoGenex Technologies Inc. (OGX-427)
	31.1			Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1			Certification of 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 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.

EXHIBIT INDEX

Exhibit
Number				Description
	31.1			Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1			Certification of 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 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002