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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

or

FOR THE TRANSITION PERIOD FROM              TO             .

Commission file number 033-80623

OncoGenex Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)

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  x    No  ¨

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  x    No  ¨

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

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

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

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OncoGenex Pharmaceuticals, Inc.

Index to Form 10-Q

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OncoGenex Pharmaceuticals, Inc.

Consolidated Balance Sheets

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

See accompanying notes.

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OncoGenex Pharmaceuticals, Inc.

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

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

See accompanying notes.

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OncoGenex Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands of U.S. dollars)

See accompanying notes.

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OncoGenex Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

OncoGenex Pharmaceuticals, Inc. (the “Company” or “OncoGenex”) is committed to the development and commercialization of new therapies that address treatment resistance in cancer patients. The Company was incorporated in the state of Delaware and, together with its subsidiaries, has a facility in Bothell, Washington and an office in Vancouver, British Columbia (Canada).

The unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States 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, 2011 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 unaudited 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, 2011 and filed with the United States Securities and Exchange Commission (“SEC”) on March 8, 2012.

The consolidated financial statements include the accounts of OncoGenex and the Company’s wholly owned subsidiary, OncoGenex Technologies Inc., or OncoGenex Technologies. All intercompany balances and transactions have been eliminated.

Accounting for Restricted Stock Awards

The Company grants restricted stock awards that generally vest and are expensed over a four-year period. In 2012, the Company also granted restricted stock awards that vest in conjunction with certain performance conditions to certain executive officers and key employees. At each reporting date, the Company evaluates whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon the Company’s assessment of accomplishing each performance provision or the occurrence of other events which may have caused the awards to accelerate and vest.

Recently Adopted Accounting Policies

In December 2011, the FASB issued ASU No. 2011-12, “Comprehensive Income.” This ASU defers the effective date for amendments to the presentation of reclassification of items out of accumulated other comprehensive income in ASU No. 2011-05. The amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05.

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All other requirements in ASU 2011-05 are not affected by this ASU, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities are required to apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this standard on a prospective basis beginning in the quarter ended March 31, 2012. The adoption of this standard did not have a significant impact on the Company’s financial position or results of operations.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement.” This ASU clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareowners’ equity. The guidance includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value. The provisions of this ASU are effective prospectively for interim and annual periods beginning on or after December 15, 2011. The Company adopted this standard on a prospective basis beginning in the quarter ended March 31, 2012. The adoption of this standard did not have a significant impact on the Company’s financial position or results of operations.

On December 20, 2009, the Company, through its wholly-owned subsidiary, OncoGenex Technologies, entered into a Collaboration Agreement with Teva Pharmaceutical Industries Ltd., or Teva, for the development and global commercialization of custirsen (and related compounds), a pharmaceutical compound designed to inhibit the production of clusterin, a protein the Company believes is associated with cancer treatment resistance, or the Licensed Product. Under the Collaboration Agreement, Teva paid the Company upfront payments in the aggregate amount of $50 million, acquired $10 million of the Company’s common stock at a premium under a separate Stock Purchase Agreement and has agreed to pay up to $370 million upon the achievement of developmental and commercial milestones and royalties at percentage rates ranging from the mid-teens to mid-twenties on net sales, depending on aggregate annual net sales of the Licensed Product.

Under the Stock Purchase Agreement, Teva’s $10 million equity investment in the Company was made at a 20% premium to a thirty-day average closing price, resulting in the issuance of 267,531 of the Company’s common shares purchased at a price of $37.38 per share. The 20% share premium was included as consideration for the custirsen license and was included in Collaboration Revenue.

In connection with the Collaboration Agreement and pursuant to the terms of agreements between the Company and Isis Pharmaceuticals, Inc., or Isis, relating to custirsen, the Company paid Isis $10 million which was recorded as research and development expense in 2009. The Company also paid approximately $0.3 million to the University of British Columbia, or UBC, pursuant to the terms of their license agreement relating to custirsen, which has been recorded as research and development expense in 2009. Pursuant to the terms of the agreements, the Company anticipates that it would be required to pay third parties 31% of any milestone payments that are not based on a percentage of net sales of the Licensed Product. Pursuant to the terms of these agreements, the Company anticipates it will pay royalties to third-parties of 4.88% to 8.00% of net sales, unless the Company’s royalties are adjusted for competition from generic compounds, in which case royalties to third parties will also be subject to adjustment on a country-by-country basis. Certain third-party royalties are tiered based on the royalty rate received by the Company. Minimum royalty rates payable by the Company assume certain third-party royalties are not paid at the time that the Licensed Product is marketed due to the expiration of patents held by such third parties. Maximum royalty rates assume all third-party royalty rates currently in effect continue in effect at the time the Licensed Product is marketed. No milestones were due in 2011 and the Company does not anticipate making any royalty payments to Isis in 2012.

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Teva has the exclusive worldwide right and license to develop and commercialize products containing custirsen and related compounds. The Company has an option to co-promote any Licensed Product in the United States and Canada.

Teva is responsible for all costs relating to product commercialization including costs incurred in relation to the Company’s co-promotion option, except for start-up costs in advance of commercialization.

On March 6, 2012, OncoGenex Technologies and Teva entered into an amendment to the Collaboration Agreement, or the Collaboration Agreement Amendment. Under the Collaboration Agreement Amendment, OncoGenex Technologies and Teva revised the clinical development plan, or Amended Clinical Development Plan, under which the following three phase 3 clinical trials have been or are expected to be initiated:

Teva will be responsible for conducting any other studies and development work necessary to obtain required regulatory approvals. The Company may assume some of these activities if assigned by the joint steering committee. Teva will be responsible for all such costs. The joint steering committee will oversee the development and regulatory approval of any Licensed Product. The Company may terminate its participation in the joint steering committee at any time.

Funding responsibilities for the Clinical Development Plan will be allocated as follows:

The Collaboration Agreement will remain in effect, on a country-by-country basis, until the expiration of the obligation of Teva to pay royalties on sales of the Licensed Product in such country (or earlier termination under its terms). After the completion of all three phase 3 clinical trials set forth in the Clinical Development Plan, or upon early termination due to a material adverse change in the Company’s patent rights related to custirsen or safety issues or “futility” as defined in the Collaboration Agreement, Teva may terminate the Collaboration Agreement at its sole discretion upon three months’ notice if notice is given prior to regulatory approval of a Licensed Product and upon six months’ notice if notice is given after such regulatory approval. If Teva terminates the Collaboration Agreement for any reasons other than an adverse change in custirsen patent rights, safety issues or “futility” determination as previously described, it will remain responsible for paying for any remaining costs of all three phase 3 clinical trials, except for specified development expenses that are the responsibility of the Company. Either party may terminate the

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Collaboration Agreement for an uncured material breach by the other party, unless such breach is not curable, in which case the agreement may not be terminated unless the other party fails to use commercially reasonable efforts to prevent a similar subsequent breach. Either party also may terminate the Collaboration Agreement upon the bankruptcy of either party. If the Collaboration Agreement is terminated by the Company for other than an uncured material breach by Teva, the Company will pay Teva a royalty on sales of Licensed Products. The percentage rates of such royalties (which are in the single digits) vary depending on whether termination occurs prior to the first regulatory approval in the United States or a primary European Market or after one of these approvals. These royalties would expire on a country-by-country basis on the earlier of ten years after the first commercial sale of a Licensed Product or certain thresholds related to generic competition.

In the event of a change of control of the Company, within 90 days of the change of control, Teva may terminate the joint steering committee at its sole discretion, terminate the co-promotion option at its sole discretion if the option has not been exercised by the Company or, if exercised, but not yet executed by the Company, or terminate the co-promotion option if in its commercially reasonable opinion co-promotion with the Company’s successor would be materially detrimental to Teva’s interests.

Revenue for the three and six months ended June 30, 2012 was $2.4 million and $3.7 million, respectively, which consists of partial recognition of deferred Collaboration Revenue representing OncoGenex’s contribution to the custirsen phase 3 development plan under the Collaboration Agreement with Teva and custirsen manufacturing costs and certain other preclinical and clinical trial costs incurred by OncoGenex in the three and six months ended June 30, 2012. As of June 30, 2012, a remaining balance of $15.4 million of the up-front payment was recorded in deferred Collaboration Revenue, and $0.5 million included in Amounts Receivable related to reimbursable costs. Revenue for the three and six months ended June 30, 2011 was $1.9 million and $3.1 million, respectively, as a result of the Collaboration Agreement with Teva. Management currently expects that all remaining Current Deferred Collaboration Revenue will be recognized as Collaboration Revenue by the fourth quarter of 2012.

With the adoption of ASC 820 “Fair Value Measurements and Disclosures”, 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 amounts receivable and accounts payable the carrying values approximate fair value due to their short-term nature.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad level listed below:

As quoted prices in active markets are not readily available for certain financial instruments, 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 ASC 820.

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. These securities are not collateralized and mature within one year.

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

Financial Instruments

Cash

Significant amounts of cash are held on deposit with large well established Canadian and U.S. financial institutions.

U.S. Government and Agency 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 the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

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Securities available-for-sale at cost or amortized cost and fair market value by contractual maturity were as follows:

Marketable securities consist of the following:

The Company’s gross realized gains and losses on sales of available-for-sale securities were not material for the three and six months ended June 30, 2012 and 2011.

All securities included in cash and cash equivalents had maturities of 90 days or less at the time of purchase. All securities included in short-term investments have maturities of within one year of the balance sheet date. The cost of securities sold is based on the specific identification method.

The Company only invests in A (or equivalent) rated securities. The Company does not believe that there are any other than temporary impairments related to its investment in marketable securities at June 30, 2012, given the quality of the investment portfolio and subsequent proceeds collected on sale of securities that reached maturity.

As of June 30, 2012, the Company recorded a $7.7 million warrant liability. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. Previously, 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

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capitalization as the Company did not have sufficient historical share price data subsequent to the reverse takeover of Sonus Pharmaceuticals, Inc., or Sonus, in 2008. As the Company has concluded that it now has sufficient historical share price data to estimate the volatility of the warrants, the expected volatility at June 30, 2012 was calculated based on the historical market volatility of the Company’s shares. A small change in the estimates used may have a relatively large change in the estimated valuation.

The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the six months ended June 30, 2012:

25,000,000 authorized common shares, par value of $0.001, and 5,000,000 preferred shares, par value of $0.001.

March 2012 Public Offering

On March 21, 2012, the Company completed a public offering of 4,165,000 shares of its common stock at a purchase price of $12.00 per share. Pursuant to an overallotment option exercised on March 27, 2012 by the underwriters in the offering, an additional offering of 624,750 shares of its common stock were issued at a price of $12.00 per share. The total gross offering amount from the public offering and exercise of the overallotment option was approximately $57.5 million. The total net proceeds to the Company from the public offering and exercise of the overallotment option, after deducting underwriting discounts and commissions and other offering expenses from the sale of the shares were approximately $53.8 million.

During the six month period ended June 30, 2012 the Company issued 33,938 common shares to satisfy stock option exercises, compared to the issuance of 24,660 common shares to satisfy stock option exercises during the six month period ended June 30, 2011.

2010 Performance Incentive Plan

As of June 30, 2012 the Company has reserved, pursuant to various plans, 1,373,677 common shares for issuance upon exercise of stock options by employees, directors, officers and consultants of the Company, of which 874,231 are reserved for options currently outstanding, and 499,446 are available for future option grants.

Stock Option Summary

Options vest in accordance with terms as determined by the Board of Directors of the Company, or the Board, which terms are typically four years for employee grants and one to three years for Board option grants. The expiry date for each option is set by the Board, which is typically seven to ten years. The exercise price of the options is determined by the Board, but generally will be at least equal to the fair value of the share at the grant date.

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

The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing model based on the weighted-average assumptions noted in the following table:

The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. Previously, 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 because of the lack of sufficient historical share price data following the reverse takeover of Sonus in 2008. As the Company has concluded that it now has sufficient historical share price data to estimate the volatility of the Company’s stock options, the expected volatility for stock options granted during 2012 was calculated based on the historical market volatility of the Company’s shares. 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 ASC 718, 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 loss:

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As of June 30, 2012 and December 31, 2011 the total unrecognized compensation expense related to stock options granted was $3.3 million and $2.7 million respectively, which is expected to be recognized as expense over a period of approximately four years.

As of June 30, 2012 and December 31, 2011 a total of 2,461,532 and 2,353,629 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.

The Company grants restricted stock awards that generally vest and are expensed over a four year period. In 2012 the Company also granted restricted stock awards that vest in conjunction with certain performance conditions to certain executive officers and key employees. At each reporting date, the Company is required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon the Company’s assessment of accomplishing each performance provision. For the three and six months ended June 30, 2012, $0.2 million and $0.2 million, respectively, was recognized related to these awards. No restricted stock awards were granted during 2011.

The following table summarizes the Company’s restricted stock award activity during the six months ended June 30, 2012 and 2011:

As of June 30, 2012 the Company had approximately $0.8 million in total unrecognized compensation expense related to the Company’s restricted stock awards that is to be recognized over a weighted-average period of approximately 3.15 years.

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As of June 30, 2012, there were exercisable warrants outstanding to purchase 1,587,301 shares of common stock at an exercise price of $20 per share, expiring in October 2015. No warrants were exercised during the six months ended June 30, 2012 or six months ended June 30, 2011.

The estimated fair value of warrants issued is reassessed at each balance sheet date using the Black-Scholes option pricing model. The following assumptions were used to value the warrants on the following balance sheet dates:

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 then changed its name to OncoGenex Pharmaceuticals, Inc. 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. The estimated value of the liability remaining with respect to excess facilities was $7.0 million as of December 31, 2011. In the six months ended June 30, 2012, with respect to excess facilities, $0.3 million was amortized into income resulting in a remaining liability of $6.7 million at June 30, 2012. 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 the then effective EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” This represents the Company’s best estimate of the liability. Subsequent changes in the liability due to changes in estimates of sublease assumptions are recognized as adjustments to excess lease charges in future periods.

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Teva Pharmaceutical Industries Ltd.

In December 2009, OncoGenex Pharmaceuticals, Inc., through its wholly-owned subsidiary, OncoGenex Technologies, entered into a Collaboration Agreement with Teva for the development and global commercialization of custirsen (and related compounds). Under the Collaboration Agreement, Teva made upfront payments in the aggregate amount of $50 million, and may make additional payments up to $370 million upon the achievement of developmental and commercial milestones and royalties at percentage rates ranging from the mid-teens to mid-twenties on net sales. Teva also acquired $10 million of the Company’s common stock at a premium under a separate Stock Purchase Agreement. The Company is required to contribute $30 million in direct and indirect costs towards the Clinical Development Plan. As of June 30, 2012, $14.6 million of these costs have been incurred by OncoGenex, resulting in a remaining funding responsibility of $15.4 million which has been recorded under Current Deferred Collaboration Revenue. Management currently expects that all remaining Current Deferred Collaboration Revenue will be recognized as Collaboration Revenue by the fourth quarter of 2012. Teva will fund all other expenses under the Clinical Development Plan.

Pursuant to the Collaboration Agreement, the Company agreed to collaborate with Teva in the development and global commercialization of custirsen. Teva received the exclusive worldwide right and license to develop and commercialize products containing custirsen and related compounds (the “Licensed Products”). The Company has an option to co-promote custirsen in the United States and Canada.

In addition to the development costs noted above, Teva is also responsible for all costs relating to product commercialization including costs incurred in relation to the Company’s co-promotion option, except for start-up costs in advance of commercialization.

Isis Pharmaceuticals Inc. and University of British Columbia

Pursuant to license agreements the Company has with the UBC and Isis, the Company is obligated to pay milestone payments of up to CAD $1.6 million and $7.75 million, respectively, upon the achievement of specified product development milestones related to OGX-427 and OGX-225 and low to mid-single digit royalties on future product sales.

In addition, the Company is required to pay to Isis 30% of all non-royalty revenue (defined to mean revenue not based on net sales of products) it receives. Isis has disclosed in its SEC filings that it is entitled to receive 30% of the up to $370 million in milestone payments the Company may receive from Teva as part of the Collaboration Agreement; however, the Company believes that certain of the milestone payments related to sales targets may qualify as royalty revenue (defined to mean revenue based on net sales of products), and therefore be subject to the lesser payment obligations. No assurance can be provided that the Company will be entitled to receive these milestone payments or, if it is, that the applicable amount payable to Isis will be less than 30%. The Company is also 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 Company paid Isis and UBC USD $0.8 million and CAD $0.1 million, respectively, in 2010 upon the initiation of a phase 2 clinical trial of OGX-427 in patients with CRPC. The Company does not anticipate making any royalty payments to Isis in 2012.

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.

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Unless otherwise terminated, the Isis agreements for custirsen 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 custirsen 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.

To facilitate the execution and performance of the Collaboration Agreement with Teva, OncoGenex and Isis agreed to amend the Isis License Agreement and OncoGenex and UBC agreed to make a corresponding amendment to the UBC License Agreement, in each case, effective December 19, 2009 and December 20, 2009, respectively.

The amendment to the Isis License Agreement provides, among other things, that if the Company is subject to change of control with a third party, where the surviving company immediately following such change of control has the right to develop and sell the product, then (i) a milestone payment of $20 million will be due and payable to Isis 21 days following the first commercial sale of the product in the United States; and (ii) unless such surviving entity had previously sublicensed the product and a royalty rate payable to Isis by the Company has been established, the applicable royalty rate payable to Isis will thereafter be the maximum amount payable under the Isis License Agreement. Any non-royalty milestone amounts previously paid will be credited toward the $20 million milestone if not already paid. As a result of the $10 million milestone payment payable to Isis in relation to the Collaboration Agreement, the remaining amount owing in the event of change of control discussed above is a maximum of $10 million. Because the Company has now licensed the product to Teva and established a royalty rate payable to Isis, no royalty rate adjustments would apply if Teva were to acquire the Company and become the surviving company. If the $30 million in advanced reimbursement of development activities has not been spent by OncoGenex prior to December 20, 2012, the third anniversary of the Collaboration Agreement between OncoGenex and Teva, OncoGenex will pay Isis an amount equal to 30% of any un-spent portion less $3.5 million.

Bayer HealthCare LLC

On June 27, 2008, Sonus completed an exclusive in-licensing agreement with Bayer HealthCare LLC 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 $0.5 million. The Company was obligated make annual payments to Bayer on the anniversary dates, which are referred to as Anniversary Payments, with an initial payment of $0.1 million paid in 2008. The payments increase by $25,000 each year until the initiation of the first phase 3 clinical trial, at which point the Anniversary Payments reset to $0.1 million each year and increase by $25,000 until the Company achieves either the first New Drug Application, or NDA, filing in the United States or the European Union. The Company was also obligated to pay royalties on net future product sales in addition to aggregate milestone payments of up to $14.0 million for clinical development and regulatory milestones.

Under the terms of the agreement, the Company had the option to terminate this contract upon 60 days written notice to Bayer. On March 30, 2012, the Company exercised its option to terminate the contract in its entirety with written notice to Bayer. As a result, effective 60 days from receipt of the notice of termination by Bayer, the Company has no other obligations associated with CSP-9222.

Lease Arrangements

The Company has an operating lease agreement for office space being used in Vancouver, Canada, which expires in September 2014.

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Future minimum annual lease payments under the Vancouver lease are as follows (in thousands):

In November 2006, prior to the Arrangement, Sonus entered into a non-cancellable operating lease agreement for office space in Bothell, Washington, expiring in 2017 (note 6). In connection with the lease, Sonus was required to provide a cash security deposit of approximately $0.5 million, which is included in Other Long Term Assets. In addition, a standby letter of credit for $0.3 million is deposited in a restricted money market account as collateral. 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 $6.7 million as at June 30, 2012 (note 6).

If the Company is unable to exit or sublet portions of this leased space, the future minimum annual lease payments are as follows (in thousands):

Consolidated rent expense relating to both the Vancouver, Canada and Bothell, Washington offices in use periods ended June 30, 2012 and 2011 was $1.3 million and $1.3 million respectively.

Guarantees and Indemnifications

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 the Company’s 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, the Company had obtained director and officer insurance that limits its exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of June 30, 2012.

The Company has certain agreements with certain organizations with which it does business that contain indemnification provisions pursuant to which the Company typically agrees to indemnify the party against certain types of third-party claims. The Company accrues 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.

The Company has performed an evaluation of events occurring subsequent to June 30, 2012. Based on this evaluation, no material events have occurred requiring financial statement disclosure.

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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 future financial and operating results, 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 into 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:

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. Factors that might cause such a difference include those discussed in Item 1A “Risk Factors”, as

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well as those discussed elsewhere in the Quarterly Report on Form 10-Q. 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.

Overview

We are a biopharmaceutical company committed to the development and commercialization of new therapies that address treatment resistance in cancer patients. We have three product candidates in our pipeline, custirsen, OGX-427, and OGX-225, each of which has a distinct mechanism of action and represents a unique opportunity for cancer drug development. Of the product candidates in our pipeline, custirsen and OGX-427 are clinical-stage assets.

Our product candidates custirsen, OGX-427, and OGX-225 focus on mechanisms of treatment resistance in cancer patients and are designed to block the production of specific proteins that we believe promote survival of tumor cells and are over-produced in response to a variety of cancer treatments. Our aim in targeting these particular proteins is to disable the tumor cell’s adaptive defenses, thereby rendering the tumor cells more susceptible to attack with a variety of cancer therapies. We believe this approach will increase survival time and improve the quality of life for cancer patients.

Product Candidate Custirsen

Custirsen is our product candidate designed to inhibit the production of clusterin, an antiapoptotic, stress-induced protein we believe promotes survival of cancer cells when overexpressed in a variety of tumors. We and collaborating investigators have conducted five phase 2 clinical trials to evaluate the ability of custirsen to enhance the effects of therapy in prostate, non-small cell lung and breast cancers. Results have been presented for each of these phase 2 trials. Data from these phase 2 studies demonstrate the potential benefit of adding custirsen, a second generation antisense molecule, to existing cancer therapies.

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In December 2009, we announced that our wholly owned subsidiary, OncoGenex Technologies Inc entered into a Collaboration and License Agreement dated December 20, 2009, or Collaboration Agreement, with Teva Pharmaceutical Industries Ltd. for the development and global commercialization of custirsen (and related compounds targeting clusterin, excluding OGX-427 and OGX-225). On March 6, 2012, OncoGenex Technologies and Teva entered into an amendment to the Collaboration Agreement, or the Collaboration Agreement Amendment. Under the Collaboration Agreement Amendment, OncoGenex Technologies and Teva revised the clinical development plan, or Amended Clinical Development Plan, under which the following three phase 3 clinical trials have been or are expected to be initiated:

For detailed information regarding our relationship with Teva and the Collaboration Agreement, refer to the discussion under the heading “Business – License and Collaboration Agreements – Teva Pharmaceutical Industries Ltd.” included in our 2011 Annual Report on Form 10-K filed on March 8, 2012.

Custirsen received Fast Track designation from the FDA for the treatment of progressive metastatic prostate cancer in combination with docetaxel. The FDA has also agreed on the design of the SYNERGY trial through the special protocol assessment process.

We have also received written, scientific advice from the European Medicines Agency, or EMA, on our development plan for custirsen for treating patients with CRPC in combination with docetaxel, which advice aligned with our development plan regarding the proposed preclinical studies and both the study design and analyses for the phase 3 SYNERGY trial. In addition, the Committee for Medicinal Products for Human Use agreed that the intended safety database would enable a sufficient qualified risk-benefit assessment for market approval.

Our phase 3 registration trials have been designed based on our phase 2 clinical results, including:

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Product Candidate OGX-427

OGX-427 is our product candidate that is designed to inhibit production of heat shock protein 27, or Hsp27, a cell-survival protein expressed in many types of cancers including prostate, bladder, breast and non-small cell lung cancer. Hsp27 expression is stress-induced, including by many anti-cancer therapies. For example, Hsp27 levels increased four-fold in prostate cancer patients after treatment with chemotherapy or hormone therapy. Overexpression of Hsp27 is thought to be an important factor leading to the development of treatment resistance and is associated with metastasis and negative clinical outcomes in patients with various tumor types.

Our current OGX-427 development activities include the following clinical trials that have been or are expected to be initiated:

Our current OGX-427 development activities for bladder cancer include the following clinical trials that have been initiated:

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Additional phase 2 investigator-sponsored studies evaluating OGX-427 in other malignancies are under development. Further details of these studies will be provided when the trials are initiated. Results of these studies may direct future company-sponsored trials in indications that show promising clinical benefits.

Available preliminary data from our ongoing phase 1 and phase 2 clinical trials as well as a completed phase 1 trial are as follows:

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For detailed information regarding OGX-427, refer to the discussion under headings “Our Product Candidates – OGX-427 – Current OGX-427 Development Activities” and “Our Product Candidates – OGX-427 – Summary of Results of OGX-427 Clinical Trials” included in our 2011 Annual Report on Form 10-K filed on March 8, 2012.

Product Candidates OGX-225

OGX-225, an inhibitor of insulin growth factor binding proteins 2 and 5, is in preclinical development. We are currently evaluating various alternatives, including partnering, which would allow us to further the development of this preclinical asset.

Discontinued Program – CSP-9222

CSP-9222 is the lead compound from a family of caspase activators. These novel, small molecules have been identified as activators of programmed cell death in preclinical models. During the first quarter of 2012, we decided to cease our previously disclosed efforts to develop directly, or through out-license, product candidate CSP-9222, and we do not plan on pursuing any further development efforts for CSP-9222 in the future. On March 30, 2012 we exercised our option to terminate our in-licensing agreement with Bayer HealthCare LLC for the development of this product candidate. As a result, effective 60 days from receipt of the notice of termination by Bayer, we no longer had any further obligations associated with CSP-9222.

Collaboration Revenue

We recorded $3.7 million of Collaboration Revenue in connection with our Collaboration Agreement with Teva in the six months ended June 30, 2012, as compared to $3.1 million in the six months ended June 30, 2011. At June 30, 2012, an aggregate of $15.4 million of the upfront collaboration payment was included in the balance sheet line item Current Deferred Collaboration Revenue, which we are recognizing as we incur direct and indirect development costs under the Collaboration Agreement. As the direct and indirect costs associated with the Clinical Development plan are incurred and the associated revenue is recognized, the Current Deferred Collaboration Revenue balance is reduced. Management currently expects that all remaining Current Deferred Collaboration Revenue will be recognized as Collaboration Revenue by the fourth quarter of 2012. Further, we are eligible to receive payments of up to $370 million upon the achievement of developmental and commercial milestones set forth in the Collaboration Agreement. At present, we are unable to predict the timing or likelihood of such milestone payments, although we do not expect to receive any milestone payments from Teva in 2012. Moreover, Isis has disclosed in its SEC filings that it believes it is entitled to receive 30% of the up to $370 million in milestone payments we may receive from Teva as part of the Collaboration Agreement. We disagree with their assessment but believe there may be some lesser payment obligation. See Note 3 of Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for further details on our collaboration with Teva.

Research and Development Expenses

Research and development, or R&D, expenses consist primarily of costs for milestone payments to third parties, clinical trials, personnel, contract manufacturing, facilities, including salaries and benefits, regulatory activities, preclinical studies, and allocations of other R&D-related costs. External R&D expenses include fees paid to universities, hospitals and other entities that conduct certain R&D activities and that manufacture our product candidates for use in our clinical trials, such as fees related to patient treatment costs, clinical trial site costs, clinical research organization costs and contract manufacturing fees incurred for preclinical, clinical, manufacturing and regulatory activities associated with preparing the compounds for submissions of NDAs or similar regulatory filings to the FDA, EMA or other regulatory agencies outside the United States and Europe.

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Currently, we manage our clinical trials through contract research organizations and independent medical investigators at their sites and at hospitals and expect this practice to continue. Through our clinical development programs, we are developing each of our product candidates in parallel for multiple disease indications. Due to the number of ongoing projects and our ability to utilize resources across several projects, we do not record or maintain information regarding the indirect operating costs incurred for our research and development programs on a program-specific basis. In addition, we believe that allocating costs on the basis of time incurred by our employees does not accurately reflect the actual costs of a project.

Under the Collaboration Agreement with Teva, we are required to spend $30 million towards development of custirsen, which will include our personnel costs for certain development activities. Teva will fund all other expenses incurred pursuant to the Clinical Development Plan. We have incurred costs of $3.5 million in 2009, $4.9 million in 2010, $3.3 million in 2011 and $2.9 million in 2012, which have been applied against our $30 million funding commitment, resulting in a remaining funding commitment of $15.4 million at June 30, 2012. We expect aggregate full-time equivalent reimbursement of between $1.5 and $2.5 million annually from 2012 to 2013, which will be applied against our funding commitment, or reimbursed to us from Teva. We currently expect that we will incur all remaining costs associated with the Clinical Development Plan by the fourth quarter of 2012.

Several of our clinical trials have been supported by grant funding that was received directly by the hospitals and/or clinical investigators conducting the clinical trials, thereby allowing us to complete these clinical trials at a lower cost to us.

Several of our clinical trials are investigator-sponsored versus company-sponsored, thereby allowing us to complete these clinical trials at a lower cost to us.

Since our drug candidates are in of development. we cannot estimate completion dates for development activities or when we might receive material net cash inflows from our R&D projects, if ever.

Our projects or intended R&D activities may be subject to change from time to time as we evaluate our R&D priorities and available resources.

We expect our R&D expenses to increase in 2012 and into the future, likely significantly, as we further expand development of custirsen, OGX-427 and our other programs. Our programs or anticipated programs may be subject to change from time to time as we evaluate our R&D priorities and available resources.

General and Administrative Expenses

General and administrative, or G&A, expenses consist primarily of salaries and related costs for our 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, and intellectual property. Other costs include professional fees for legal and auditing services, insurance and facility costs. While we believe that G&A resources are sufficient to carry on existing development activities. we anticipate that G&A expenses will increase in the future as we continue to expand our operating activities.

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Excess Lease Liability

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 then changed its name to OncoGenex Pharmaceuticals, Inc. 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. The estimated value of the liability remaining with respect to excess facilities was $7.0 million as of December 31, 2011. In the six months ended June 30, 2012, with respect to excess facilities, $0.3 million was amortized into income resulting in a remaining liability of $6.7 million at June 30, 2012. 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 the then effective EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” This represents the Company’s best estimate of the liability. Subsequent changes in the liability due to changes in estimates of sublease assumptions are recognized as adjustments to excess lease charges in future periods.

Results of Operations

Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011

Revenue

Revenue for the three months ended June 30, 2012 increased to $2.4 million, from $1.9 million for the three months ended June 30, 2011. The increase in 2012 as compared to 2011 was due to an increase in revenue earned through our strategic collaboration with Teva, as a result of the clinical development activities associated with the AFFINITY trial which we plan to initiate later this year. Collaboration revenue for the three months ended June 30, 2012 includes recognition of $1.9 million from the $30.0 million upfront payment and $0.5 million included in Amounts Receivable related to reimbursable costs.

Research and Development Expenses

Our research and development expenses for our clinical development programs as of the three months ended June 30, 2012 and 2011 are as follows (in thousands):

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R&D expenses for the three months ended June 30, 2012 increased to $6.3 million from $5.4 million in the three months ended June 30, 2011. The increase in 2012 as compared to 2011 was due primarily to higher clinical study expenses associated with patient enrollment in our clinical trial evaluating OGX-427 in combination with initial chemotherapy in patients with metastatic bladder cancer, the startup of the AFFINITY trial and employee expenses, including stock-based compensation expense. These increases were partially offset by lower manufacturing costs related to the timing of OGX-427 manufacturing runs and lower preclinical expenses. Certain costs for the custirsen phase 3 clinical trials are applied against the non-refundable upfront payments received from Teva in December 2009, while costs unassociated with the AFFINITY trial, such as manufacturing costs and compensation for work performed by our employees on the SYNERGY trial are reimbursable from Teva on a cash basis. We expect R&D expenses to increase as we further develop our proprietary product candidates.

General and Administrative Expenses

G&A expenses for the three months ended June 30, 2012 increased to $2.0 million from $1.5 million in the three months ended June 30, 2011 due to higher employee expenses, including stock-based compensation expenses, offset by higher accounting charge on excess facilities in the six months ended June 30, 2012 as compared to the same period in 2011.

Interest Income / (Expense)

Interest income for the three months ended June 30, 2012 increased to $91,000 from $63,000 for the three months ended June 30, 2011 due to higher balances of interest-bearing securities in the second quarter of 2012, due to the receipt of funds resulting from the financing completed in March 2012, as compared to 2011.

Other Income / (Expense)

Other expense for the three months ended June 30, 2012 increased to $6,000 from $87,000 in income for the three months ended June 30, 2011 due to higher foreign exchange losses.

Gain / (Loss) on Warrants

We recorded a $1.6 million gain on revaluation of the warrants in the three months ended June 30, 2012 which is included on our consolidated statement of comprehensive loss (income) as gain (loss) on warrants. We revalue the warrants at each balance sheet date to fair value. If unexercised, the warrants will expire in October 2015. We recorded a $1.7 million loss on revaluation of the warrants in the three months ended June 30, 2011.

Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011

Revenue

Revenue for the six months ended June 30, 2012 increased to $3.7 million, from $3.1 million for the six months ended June 30, 2011. The increase in 2012 as compared to 2011 was due to an increase in revenue earned through our strategic collaboration with Teva, as a result of the clinical development activities associated with the AFFINITY trial. Collaboration revenue for the six months ended June 30, 2012 includes recognition of $2.9 million from the $30.0 million upfront payment and $0.8 million through collaborative research, $0.5 million of which is included in Amounts Receivable.

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Research and Development Expenses

Our research and development expenses for our clinical development programs as of the six months ended June 30, 2012 and 2011 are as follows (in thousands):

R&D expenses for the six months ended June 30, 2012 increased to $11.4 million from $10.3 million in the six months ended June 30, 2011. The increase in 2012 as compared to 2011 was due primarily to higher clinical study expenses associated with patient enrollment in our Phase 2 clinical trial evaluating OGX-427 in patients with metastatic bladder cancer, the startup of the AFFINITY trial and employee expenses, including stock-based compensation expense. These increases were partially offset by lower manufacturing costs related to the timing of OGX-427 manufacturing runs. Certain costs for the custirsen phase 3 clinical trials are applied against the non-refundable upfront payments received from Teva in December 2009, while costs unassociated with the AFFINITY trial, such as manufacturing costs and compensation for work performed by our employees on the SYNERGY trial are reimbursable from Teva on a cash basis. We expect R&D expenses to increase as we further develop our proprietary product candidates.

General and Administrative Expenses

G&A expenses for the six months ended June 30, 2012 increased to $3.8 million from $3.0 million in the six months ended June 30, 2011 due to higher employee expenses, including stock-based compensation expenses, offset by higher accounting charge on excess facilities in the six months ended June 30, 2012 as compared to the same period in 2011.

Interest Income / (Expense)

Interest income for the six months ended June 30, 2012 increased to $141,000 from $119,000 for the six months ended June 30, 2011 due to higher balances of interest-bearing securities in the second quarter of 2012, due to the receipt of funds resulting from the financing completed in March 2012, as compared to 2011.

Other Income / (Expense)

Other income for the six months ended June 30, 2012 decreased to $17,000 from $83,000 for the six months ended June 30, 2011 due to lower foreign exchange gains.

Gain / (Loss) on Warrants

We recorded a $0.2 million gain on revaluation of the warrants in the six months ended June 30, 2012 which is included on our consolidated statement of comprehensive loss (income) as gain (loss) on warrants. We revalue the warrants at each balance sheet date to fair value. If unexercised, the warrants will expire in October 2015. We recorded a $0.4 million gain on revaluation of the warrants in the six months ended June 30, 2011.

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Liquidity and Capital Resources

We have incurred an accumulated deficit of $91.8 million through June 30, 2012, and we expect to incur substantial and increasing additional losses in the future as we expand our R&D activities and other operations, as more fully described below. We have not generated any revenue from product sales to date, and we do not expect to generate product sales revenue for several years, if ever. In the six months ended June 30, 2012, we generated $3.7 million in Collaboration Revenue from the Collaboration Agreement with Teva.

In March 2012 we completed a public offering of 4,789,750 shares of our common stock at a purchase price of $12.00 per share. The total net proceeds to us from the public offering and exercise of the overallotment option, after deducting underwriting discounts and commissions and other offering expenses from the sale of the shares were approximately $53.8 million.

All of our operations to date have been funded through the sale of our equity securities and payments received from Teva. As of June 30, 2012, our cash, cash equivalents, and short-term investments increased to $97.6 million in the aggregate from $64.9 million as of December 31, 2011.

Based on our current expectations, we believe our capital resources at June 30, 2012 will be sufficient to fund our currently planned operations into 2015. Our currently planned operations are set forth below under the heading “Operating Capital and Capital Expenditure Requirements.”

Cash Flows

Cash Used in Operations

For the six months ended June 30, 2012, net cash used in operating activities increased to $21.1 million, from $9.6 million in cash used in operations in the six months ended June 30, 2011. The increase in cash used in operations is primarily attributable to our custirsen phase 3 clinical trial costs associated with the AFFINITY trial, OGX-427 clinical trial costs, and higher employee expenses.

Cash Provided by Financing Activities

For the six months ended June 30, 2012, net cash provided by financing activities increased to $53.9 million from $0.1 million in the six months ended June 30, 2011. Net cash provided by financing activities in the six months ended June 30, 2012 was primarily attributable to the net proceeds we received from the public offering of our common stock that closed in March 2012. All net cash provided by financing activities in the six months ended June 30, 2011 was the result of proceeds from the issuance of common shares on stock option exercises.

Cash Used/Provided by Investing Activities

Net cash used in investing activities for the six months ended June 30, 2012 was $47.5 million compared with $7.0 million in cash provided by investment activities the six months ended June 30, 2011. Net cash used in investing activities in the six months ended June 30, 2012 was due to transactions involving marketable securities in the normal course of business and partially attributable to recent proceeds from financing. Net cash provided by investing activities in the six months ended June 30, 2011 was due to transactions involving marketable securities in the normal course of business.

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Operating Capital and Capital Expenditure Requirements

We also believe that our cash, cash equivalents, short-term investments and receivables from Teva will be sufficient to fund our currently planned operations into 2015 including:

As of June 30, 2012, we have a remaining commitment to fund $15.4 million towards the three phase 3 trials of custirsen, while Teva is required to fund all additional expenses under the clinical development plan. While we currently have sufficient operating capital to fund our currently planned operations through the release of final data from the SYNERGY trial, the final results from the AFFINITY and ENSPIRIT phase 3 trials may be released at a date that is beyond the period for which we currently project we have available cash resources. In addition, if we were to conduct development activities with respect to our other product candidates beyond those development activities mentioned in the list above, including with respect to OGX-225, we would require additional funding to support such operations. If we need to extend our cash availability, or to conduct any such currently unplanned development activities, we would seek such necessary funding through the licensing or sale of certain of our product candidates, by executing a partnership or collaboration agreement, or through private or public offerings of our equity or debt.

Our future capital requirements will depend on many factors, including:

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements at June 30, 2012.

Inflation

We do 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 us 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, 2011, as filed with the SEC on March 8, 2012. There have been no material 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 2011 Form 10-K. For more information regarding our current contingencies and commitments, see note 7 to the financial statements included above.

Material Changes in Financial Condition

The increase in assets from December 31, 2011 was primarily due to increased cash, cash equivalents and marketable securities resulting from the financing completed in March 2012. The decrease in liabilities from December 31, 2011 relates predominantly to the recognition of deferred Collaboration Revenue and the amortization of excess lease-related liabilities.

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 20110 Form 10-K filed with the SEC on March 8, 2012. Since the date of our 2011 Form 10-K, we have changed the method for estimating the volatility of our stock options and warrants. Previously, the computation of expected volatility of the Company’s stock options and warrants was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization because of the lack of sufficient share price data following the reverse takeover of Sonus in 2008. As the Company has concluded that it now has sufficient historical share price data to estimate the volatility of the Company’s stock options and warrants, the expected volatility is now based on the historical market volatility of the Company’s shares. There have been no other material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

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New Accounting Standards

See Note 2, “Accounting Policies,” of the consolidated financial statements for information related to the adoption of new accounting standards in 2012, 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.

Interest Rate Risk

Interest rate risk is the risk that the fair values and future cash flows of financial instruments will fluctuate because of the changes in market interest rates. 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 we monitor our exposure to interest rate changes is monitored. We have very limited interest rate risk due to the few assets or liabilities subject to fluctuations in interest rates. Our investment portfolio includes only marketable securities with active secondary or resale markets to help ensure portfolio liquidity. Due to the nature of our highly liquid marketable securities, a change in interest rates would not materially change the fair market value. We have estimated the effect on our portfolio of a hypothetical increase in interest rates by one percent to be a reduction of $141,000 in the fair value of our investments as of June 30, 2012.

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. We have estimated the effect on our reported results of operations of a hypothetical increase of 10 percent in the exchange rate of the Canadian dollar against the U.S. dollar to be $50,000 for the six months ended June 30, 2012.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

During the quarter ended June 30, 2012, we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report.

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Changes in Internal Control Over Financial Reporting

We have 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, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

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Risks Related to Our Business

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report on Form 10-Q, before deciding to invest in our common stock. If any of the following risks materialize, our business, financial condition, results of operation and future prospects will likely be materially and adversely affected. In that event, the market price of our common stock could decline and you could lose all or part of your investment.

Risks Related to Our Business

We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have never had any products available for commercial sale and we may never achieve or sustain profitability.

We are a clinical-stage biopharmaceutical company, are not profitable, have incurred losses in each year since our inception and do not expect to become profitable in the foreseeable future. We have never had any products available for commercial sale and we have not generated any revenue from product sales nor do we anticipate that we will generate revenue from product sales in the foreseeable future. Our only revenue to date has been Collaboration Revenue under our Collaboration Agreement with Teva. We have not yet submitted any products for approval by regulatory authorities and we continue to incur research and development and general and administrative expenses related to our operations. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our research activities and conduct development of, and seek regulatory approvals for, our product candidates, and prepare for and begin to commercialize any approved products. If our product candidates fail in clinical trials or do not gain regulatory approval, or if our product candidates do not achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

Our clinical trials may be suspended or terminated at any time, including by the FDA, other regulatory authorities, the Institutional Review Board overseeing the clinical trial at issue, by a clinical trial site or investigator, by Teva in the case of custirsen, or by us. Any failure or significant delay in completing clinical trials for our product candidates could materially harm our financial results and the commercial prospects for our product candidates.

We do not know whether any of our currently planned clinical trials for custirsen or OGX-427 will proceed or be completed on schedule, if at all, or, with respect to our other product candidates, whether we will be able to initiate any future preclinical studies or clinical trials, as applicable, beyond those currently planned. The completion or commencement of future preclinical studies or clinical trials could be substantially delayed or prevented by several factors, including:

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The completion of our clinical trials currently in progress could also be substantially delayed or prevented by several factors, including: