In December 2009, we, through our 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 we believe is associated with cancer treatment resistance, or the Licensed Product.

Under the collaboration agreement, Teva paid us upfront payments in the aggregate amount of $50 million, acquired $10 million of our common stock at a premium under a separate Stock Purchase Agreement and will make payments of 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. We did not receive any payments from Teva resulting from the achievement of developmental or commercial milestones or royalties in 2013 or the first six months of 2014.

Under the Stock Purchase Agreement, Teva’s $10 million equity investment in OncoGenex was made at a 20% premium to a thirty-day average closing price, resulting in the issuance of 267,531 of our 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 us and Isis Pharmaceuticals, Inc., or Isis, relating to custirsen, we paid Isis $10 million which was recorded as research and development expense in 2009. We 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 was recorded as research and development expense in 2009. Pursuant to the terms of the agreements, we anticipate that we 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, we anticipate we will pay royalties to third-parties of 4.88% to 8.00% of net sales, unless our 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 us. Minimum royalty rates payable by us 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. Teva has the exclusive worldwide right and license to develop and commercialize products containing custirsen and related compounds. In March 2014, we exercised our option to enter into negotiations with Teva for a co-promotion agreement for any Licensed Product under the Collaboration Agreement in the United States and Canada.

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

In March 2012, OncoGenex Technologies and Teva entered into an amendment to the collaboration agreement. Under this amendment, OncoGenex Technologies and Teva revised the clinical development plan, under which the following three phase 3 clinical trials have been initiated:

Teva will be responsible for conducting any other studies and development work necessary to obtain required regulatory approvals. We 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. We may terminate our participation in the joint steering committee at any time.

We have fulfilled our obligation of funding $30 million towards the development of custirsen. Teva is funding all other expenses under the collaboration agreement, including the three phase 3 clinical trials under the clinical development plan.

The collaboration agreement with Teva 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 our 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 our responsibility.

Either party may terminate the 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 us for other than an uncured material breach by Teva, we 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 OncoGenex, 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 us or, if exercised, but not yet executed by us, or terminate the co-promotion option if in its commercially reasonable opinion co-promotion with our successor would be materially detrimental to Teva’s interests.

Of the total $5.0 million in amounts receivable at June 30, 2014, $4.9 million represents unbilled expense reimbursements from Teva, for which we bill quarterly in arrears. Consequently, we are exposed to a significant concentration of credit risk.

Amendment to Isis and UBC License Agreements

To facilitate the execution and performance of the collaboration agreement with Teva, we amended our license agreements with Isis and UBC, as it pertains to custirsen, in December 2009.

The amendment to the license agreement with Isis provides, among other things, that if we are the subject of a 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 us has been established, the applicable royalty rate payable to Isis will thereafter be the maximum amount payable under the 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 with Teva, the remaining amount owing in the event of change of control discussed above is a maximum of $10 million. As we have now licensed the product to Teva and established a royalty rate payable to Isis, no royalty rate adjustments would apply if Teva acquires us and is the surviving company. The $30 million in advanced reimbursement of development activities has been fully spent by us prior to the third anniversary of the collaboration agreement with Teva. As a result, we do not owe any payment to Isis related to the $30 million advance reimbursement from Teva.