Cascadian Therapeutics
Oncothyreon Inc. (Form: 10-Q, Received: 05/15/2009 08:01:45)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-33882
ONCOTHYREON INC.
(Exact name of registrant as specified in its charter)
     
Delaware   26-0868560
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
     
2601 Fourth Ave., Suite 500    
Seattle, Washington   98121
(Address of principal executive offices)   (Zip Code)
(206) 801-2100
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ   Smaller reporting company o
        (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ
     As of May 14, 2009, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 19,492,432.
 
 

 


 

ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2009
INDEX
         
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  EX-10.1
  EX-12.1
  EX-31.1
  EX-31.2
  EX-32.1
  EX-32.2
     In this Form 10-Q, unless otherwise specified, all monetary amounts are in United States dollars, all references to “$” and “U.S. dollars” mean U.S. dollars and all references to “Cdn. $” mean Canadian dollars.

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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ONCOTHYREON INC.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
                 
    March 31,     December 31,  
    2009     2008  
ASSETS
               
Current
               
Cash and cash equivalents
  $ 15,430     $ 19,166  
Accounts receivable
    1,677       1,828  
Government grant receivable
    415       40  
Prepaid expenses
    198       384  
 
           
 
    17,720       21,418  
Plant and equipment, net
    799       867  
Notes receivable
    217       215  
Long term deposit
    354       354  
Goodwill
    2,117       2,117  
 
           
 
  $ 21,207     $ 24,971  
 
           
LIABILITIES
               
Current
               
Accounts payable and accrued expenses
  $ 2,139     $ 3,843  
Current portion of deferred revenue
    18       18  
 
           
 
    2,157       3,861  
Notes payable
    199       199  
Deferred revenue
    160       164  
Class UA preferred stock, 12,500 shares authorized, 12,500 and 12,500 shares issued and outstanding
    30       30  
 
           
 
    2,546       4,254  
 
           
 
               
Contingencies, commitments, and guarantees
               
 
               
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding
           
Common stock, $0.0001 par value; 100,000,000 shares authorized, 19,492,432 issued and outstanding
    325,043       325,043  
Warrants
    64       64  
Additional paid-in capital
    15,510       15,094  
Accumulated deficit
    (316,890 )     (314,418 )
Accumulated other comprehensive loss
    (5,066 )     (5,066 )
 
           
 
    18,661       20,717  
 
           
 
  $ 21,207     $ 24,971  
 
           
See accompanying notes to the condensed consolidated financial statements

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ONCOTHYREON INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(Unaudited)
                 
    Three months  
    ended March 31,  
    2009     2008  
Revenue
               
Contract manufacturing
  $     $ 1,718  
Licensing revenue from collaborative agreements
    4       302  
 
           
 
    4       2,020  
 
           
Expenses
               
Research and development
    680       2,308  
Manufacturing
          2,080  
General and administrative
    1,751       2,703  
Depreciation
    65       103  
Investment and other income, net
    (20 )     (60 )
 
           
 
    2,476       7,134  
 
           
Net loss
    (2,472 )     (5,114 )
Other comprehensive loss
          (103 )
 
           
Comprehensive loss
  $ (2,472 )   $ (5,217 )
 
           
Basic and diluted loss per share
  $ (0.13 )   $ (0.26 )
 
           
Weighted average number of common shares outstanding
    19,492,432       19,485,889  
 
           
See accompanying notes to the condensed consolidated financial statements

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ONCOTHYREON INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)
                                         
                                    Accumulated  
                    Additional             Other  
    Common Stock     Paid-in     Accumulated     Comprehensive  
    Number     Amount     Capital     Deficit     Loss  
Balance at December 31, 2007
    19,485,889     $ 324,992     $ 13,636     $ (321,543 )   $ (5,066 )
 
                             
Stock-based compensation
                1,509              
Net income
                      7,125        
Conversion of restricted share units
    6,543       51       (51 )            
 
                             
Balance at December 31, 2008
    19,492,432     $ 325,043     $ 15,094     $ (314,418 )   $ (5,066 )
 
                             
Stock-based compensation
                416              
Net loss
                      (2,472 )      
 
                             
Balance at March 31, 2009
    19,492,432     $ 325,043     $ 15,510     $ (316,890 )   $ (5,066 )
 
                             
See accompanying notes to the condensed consolidated financial statements

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ONCOTHYREON INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
                 
    Three months ended March 31,    
    2009     2008  
Operating
               
Net loss
  $ (2,472 )   $ (5,114 )
Depreciation
    65       103  
Stock-based compensation expense
    416       376  
Deferred revenue
          1,243  
Loss on disposal of plant and equipment
    5        
Recognition of unearned revenue
    (4 )     (762 )
Net change in non-cash working capital balances from operations
               
Accounts receivable
    151       (717 )
Government grant receivable
    (375 )     342  
Prepaid expenses
    186       128  
Inventory
          (1,326 )
Accounts payable and accrued liabilities
    (1,670 )     (1,501 )
 
           
 
    (3,698 )     (7,228 )
 
           
Investing
               
Purchase of short-term investments
          (10,397 )
Redemption of short-term investments
          11,879  
Purchase of plant and equipment
    (38 )     (387 )
 
           
 
    (38 )     1,095  
 
           
Financing
               
Repayment of capital lease obligations
          (30 )
 
           
 
          (30 )
 
           
Net cash outflow
    (3,736 )     (6,163 )
Effect of exchange rate fluctuations on cash and cash equivalents
          13  
 
           
Decrease in cash and cash equivalents
    (3,736 )     (6,150 )
Cash and cash equivalents, beginning of period
    19,166       12,035  
 
           
Cash and cash equivalents, end of period
  $ 15,430     $ 5,885  
 
           
Supplemental disclosure of cash flow information
               
Amount of interest paid in the period
  $     $ 2  
 
           
See accompanying notes to the condensed consolidated financial statements

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ONCOTHYREON INC.
Notes to the Condensed Consolidated Financial Statements
Three months ended March 31, 2009 and 2008
(Unaudited)
1. DESCRIPTION OF BUSINESS
     Oncothyreon Inc. (the “Company” or “Oncothyreon”) is a biotechnology company incorporated in the State of Delaware on September 7, 2007. Oncothyreon specializes in the development of innovative therapeutic products for the treatment of cancer. Oncothyreon’s goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Oncothyreon’s operations are not subject to any seasonality or cyclicality factors.
     In December 2008, the Company sold its Stimuvax manufacturing rights and know-how, together with its existing inventory to Merck KGaA. As part of the sale, the Company also transferred its Edmonton, Alberta facility and most of its Edmonton–based employees to an affiliate of Merck KGaA.
2. BASIS OF PRESENTATION
     The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements. The accounting principles and methods of computation adopted in these condensed consolidated financial statements are the same as those of the audited consolidated financial statements for the year ended December 31, 2008, except as disclosed in Note 3 below.
     Omitted from these statements are certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP. The Company believes all adjustments necessary for a fair statement of the results for the periods presented have been made. The financial results for the three months ended March 31, 2009 are not necessarily indicative of financial results for the full year. The condensed consolidated financial statements and notes presented should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2008 filed with our annual report on Form 10-K with the United States Securities and Exchange Commission.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Fair Value Measurements
     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157, which the Company adopted on January 1, 2008, defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements. In accordance with FASB Staff Position (“FSP”) FSP No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”), for all other non-financial assets and liabilities, SFAS 157 is effective for fiscal years beginning after November 15, 2008. In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP 157-3”), that clarifies the application of SFAS 157 for financial assets in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.
     On January 1, 2009, in accordance with FSP 157-2, the Company adopted the provisions of SFAS 157 on a prospective basis for its non-financial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis. SFAS 157 requires that the Company determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy established in SFAS 157. The adoption of FSP 157-2 did not have any impact on the Company’s financial position or results of operations.
     As of March 31, 2009, all of the financial instruments owned by the Company, which amounted to $5 million, were held in money market funds, are classified as Level 1 investments and are valued at fair value based on quoted market prices in active markets. The impact of adoption was not significant.

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Business Combinations
     In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations (“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” SFAS 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method. The adoption of SFAS 141R had no impact on the Company’s financial position or results of operation.
Collaborative Arrangements
     Effective January 1, 2009 the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 07-1, Collaborative Arrangements (“EITF 07-1”). EITF 07-1 addresses the accounting for arrangements in which two companies work together to achieve a commercial objective, without forming a separate legal entity. The nature and purpose of a company’s collaborative arrangements are required to be disclosed, along with the accounting policies applied and the classification and amounts for significant financial activities related to the arrangements. The adoption of EITF 07-1 had no impact on the Company’s consolidated financial statements.
4. RESEARCH AND DEVELOPMENT
     Government grant funding of $415,000 (2008 $284,000) was credited against research and development costs during the three months ended March 31, 2009.
5. SHARE CAPITAL
Stock Transactions
(a) Loss Per Share
     The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:
                 
    Three months ended  
    March 31,  
    2009     2008  
Numerator:
               
Net loss
  $ 2,472     $ 5,114  
 
               
Denominator:
               
Weighted average shares outstanding used to compute earnings per share — basic
    19,492,432       19,485,889  
Effect of dilutive options and RSU’s
           
Weighted average shares outstanding and dilutive securities used to compute earnings per share — diluted
    19,492,432       19,485,889  
     For the three months ended March 31, 2009 , shares potentially issuable upon the exercise or conversion of director and employee stock options and non-employee director restricted share units of 156,957 (2008 — 89,258) and 1,357,619 (2008 — 1,262,171) of common shares respectively have been excluded from the calculation of diluted loss per share because the effect would have been anti-dilutive.
(b) Registration Statement
     On March 20, 2008, the Company filed a shelf registration statement on Form S-3 to issue up to $50 million in common stock, preferred stock, debt securities, depositary shares, warrants, units and guarantees. On July 29, 2008, the Company filed a post-effective amendment to such registration statement to give it the flexibility to offer and sell its common stock and preferred stock through the issuance of subscription rights to its stockholders on a pro rata basis.

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6. STOCK-BASED COMPENSATION
Stock Option Plan
     The Company sponsors a Stock Option Plan under which a maximum fixed reloading percentage of 10% of the issued and outstanding common stock of the Company may be granted to employees, directors, and service providers. Prior to April 1, 2008 the exercise price of each option equals the closing market value at the date immediately preceding the date of the grant in Canadian dollars as quoted on the Toronto Stock Exchange. The exercise price of options granted subsequent to April 1, 2008 equals the closing price of the Company’s shares of common stock on the NASDAQ Global Market on the day of the option grant. In general, options issued under the plan vest in equal amounts over four years on the anniversary date of the grant, and expire eight years following the date of the initial grant.
     During the three months ended March 31, 2009, the Company granted 176,000 (2008 — 8,000) stock options.
     The Company uses the Black-Scholes option pricing model to value the options at each grant date, using the following weighted average assumptions:
                 
    Three months ended
    March 31,
    2009   2008
CDN$ — Weighted average grant-date fair value for stock options granted in CDN$
  $     $ 3.84  
US$ — Weighted average grant-date fair value for stock options granted in US$
  $ 0.97     $  
Expected dividend rate
    N/A       N/A  
Expected volatility
    124.70       109.34  
Risk-free interest rate
    2.26       3.09  
Expected life of options in years
    6.0       6.0  
Restricted Share Unit Plan
     The Company also sponsors a Restricted Share Unit Plan (the “RSU Plan”) for non-employee directors that was established in 2005. The RSU Plan provides for grants to be made from time to time by the board of directors or a committee thereof. Each grant is be made in accordance with the RSU Plan and terms specific to that grant and will be converted into one common share of common stock at the end of the grant period (not to exceed five years) without any further consideration payable to the Company in respect thereof. The current maximum number of common shares of the Company reserved for issuance pursuant to the RSU Plan is 156,957.
     During the three months ended March 31, 2009, the Company granted 77,408 (2008 — zero) restricted share units with a fair value of $85,000 (2008 — zero). As of the date of this report, no shares of common stock remain available for future grants of restricted stock units under the RSU. The Company has submitted a proposal to stockholders to approve the addition of 300,000 shares of common stock to the RSU plan, in connection with its 2009 annual meeting of stockholders.
     The fair value of the restricted share units has been determined to be the equivalent of the Company’s common shares closing trading price on the date immediately prior to the grant as quoted in Canadian dollars on the Toronto Stock Exchange.
7. INVESTMENT AND OTHER (INCOME) EXPENSE, NET
     Included in investment and other (income) expense, net, of $(20,000) (2008 — income of $60,000) for the three month period ended March 31, 2009, are net foreign exchange losses of $18,000 (2008 — $146,000).
8. CONTINGENCIES, COMMITMENTS, AND GUARANTEES
Royalties
     In connection with the issuance of the Class UA preferred stock, the Company has agreed to pay a royalty in the amount of 3% of the net proceeds of sale of any products sold by the Company employing technology acquired in exchange for the shares. None of the Company’s products currently under development employ the technology acquired.

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     Pursuant to various license agreements, the Company is obligated to pay royalties based both on the achievement of certain milestones and a percentage of revenues derived from the licensed technology.
     In addition, commencing December 31, 2005, the Company is committed to minimum annual payments of $100,000 during the existence of a royalty term in exchange for a non-exclusive worldwide royalty-bearing license of technology. Upon the achievement of certain milestones, additional payments will be triggered under the terms of the licensing agreement. These payments will be recognized as expense upon performance of obligations defined as milestones in the agreement.
Guarantees
     The Company is contingently liable under a mutual undertaking of indemnification with Merck KGaA for any withholding tax liability that may arise from payments under the collaborative agreements.
     In the normal course of operations, the Company indemnifies counterparties in transactions such as purchase and sale contracts for assets or shares, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the Company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparties as a consequence of the transaction. The terms of these indemnification agreements vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amount that could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnification agreements and no amounts have been accrued in the accompanying condensed consolidated financial statements with respect to these indemnification guarantees.
     Under the Agreement and Plan of Reorganization between Oncothyreon, Biomira Acquisition Corporation, ProlX and two of the principal stockholders of ProlX, the Company has indemnified the former ProlX stockholders against certain liabilities, including with respect to certain tax liabilities that may arise as a result of actions taken by the Company through 2011. The estimated maximum potential amount of future payments that could potentially result from hypothetical future claims is $15 million. The Company believes the risk of having to make any payments under this agreement to be remote and therefore no amounts have been recorded thereon.
9. FINANCIAL INSTRUMENTS
     Financial instruments consist of cash and cash equivalents, accounts receivable, government grant receivable and notes receivable that will result in future cash receipts, as well as accounts payable and accrued liabilities, notes payable and Class UA preferred stock that require future cash outlays.
Foreign Exchange Risk
     Historically, the Company has purchased goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent, in certain European currencies. Since the Company disposed of its Canadian operations in 2008, expenditures have been incurred primarily in U.S. dollars. The Company does not utilize derivative instruments.
     At March 31, 2009, the Company had a minimal amount of Canadian dollar denominated cash and cash equivalents and, as a result, for the foreseeable future, exchange rate fluctuations should not have a material effect on our results of operations.
Accounts Receivable, Government Grant Receivable and Accounts Payable and Accrued Liabilities
     The carrying amounts of accounts receivable, government grant receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these financial instruments.
Notes Receivable

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     The fair value of notes receivable are assumed to be equal to their carrying value as the interest rate charged approximates market.
Notes Payable and Class UA Preferred Stock
     The fair values of notes payable and class UA preferred stock are assumed to be equal to their carrying value as the amounts that will be paid and the timing of the payments cannot be determined with any certainty.
Limitations
     Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment; therefore, they cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
     Additional disclosure as required by SFAS 157 for assets and liabilities measured at fair value on a recurring basis are not presented as all of the Company’s financial instruments as of March 31, 2009 amounted to $5 million, are held in money market funds, are classified as Level 1 investments and are valued at fair value based on quoted market prices in active markets.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
      The information in this Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I, Item 1 of this quarterly report. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this quarterly report in Part II, Item 1A — “Risk Factors,” and elsewhere in this quarterly report . These statements, like all statements in this quarterly report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.
      Overview
     We are a clinical-stage biopharmaceutical company focused primarily on the development of therapeutic products for the treatment of cancer. Our goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Our cancer vaccines are designed to stimulate the immune system to attack cancer cells, while our small molecule compounds are designed to inhibit the activity of specific cancer-related proteins. We are advancing our product candidates through in-house development efforts and strategic collaborations.
     We believe the quality and breadth of our product candidate pipeline, strategic collaborations and scientific team will enable us to become an integrated biopharmaceutical company with a diversified portfolio of novel, commercialized therapeutics for major diseases.
     Our lead product candidate is Stimuvax, which is a cancer vaccine currently in Phase 3 development for non-small cell lung cancer, or NSCLC. We have granted an exclusive, worldwide license to Merck KGaA of Darmstadt, Germany, or Merck KGaA, for the development, manufacture and commercialization of Stimuvax. Our pipeline of clinical and pre-clinical stage proprietary small molecule product candidates was acquired by us in October 2006 from ProlX Pharmaceuticals Corporation, or ProlX. We are currently focusing our internal development efforts on PX-478, for which we initiated a Phase 1 trial in advanced metastatic cancer in August 2007, and PX-866, for which we initiated a Phase 1 trial in advanced metastatic cancer in June 2008. We are completing a Phase 2 trial for PX-12 in pancreatic cancer and have announced our intention to seek a partner for further development. As of the date of this report, we have not licensed any rights to our small molecules to any third party and retain all development, commercialization and manufacturing rights. In addition to our product candidates, we have developed novel vaccine technology we may develop ourselves and/or license to others.
     In 2001, we entered into exclusive supply and collaboration agreements with Merck KGaA to develop and market Stimuvax, subject to certain development and co-promotion rights we retained. In connection with entering into these agreements, Merck KGaA made an equity investment in us in 2001, was obligated to make additional cash payments, generally contingent on satisfaction of specified milestones, and to pay us a royalty on Stimuvax sales, if any.

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     In August 2007, we restructured our agreements with Merck KGaA such that Merck KGaA would fully assume responsibility for the further clinical development and marketing of Stimuvax. Under the restated agreements, we converted the U.S. and Canadian co-promotion interest to a specified royalty rate, which is higher than the rate Merck KGaA had agreed to pay in markets outside of North America under the original agreements. The restated agreements also contained development and sales-based milestone payments as well as revised payments related to manufacturing scale-up and process transfer. Under the revised agreements, we retained the right to manufacture Stimuvax, including process development and scale-up for commercial manufacturing. The signing of the amended agreements also triggered a milestone payment to us of $2.5 million, before associated payments to third parties of $0.1 million, which was received in September 2007. In December 2007, we announced that we had completed the transfer of certain assays and methodology related to Stimuvax to Merck KGaA triggering a payment to us of $5.0 million. In May 2008 we completed the transfer of certain additional assays and manufacturing technology related to Stimuvax which triggered a payment to us of $3.0 million.
     Under the August 2007 agreement Merck KGaA would exclusively purchase Stimuvax from us; with respect to purchases for commercial sales, the purchase price would be subtracted from our royalty.
     On December 18, 2008, we entered into a new license agreement with Merck KGaA pursuant to which the amended and restated collaboration and supply agreements were replaced. Under the new license agreement, among other things, we licensed to Merck KGaA the right to manufacture Stimuvax and transferred certain manufacturing know-how to Merck KGaA in return for an upfront payment of approximately $10.5 million and the royalty rates on net sales to which we are entitled if Stimuvax is commercialized were reduced by a specified amount which we believe is consistent with our estimate of costs of goods, manufacturing scale up costs and certain other expenses assumed by Merck KGaA. All other milestone payments remained the same and we expect to receive a milestone payment in 2009 related to process development.
     In connection with this transaction, we also entered into an asset purchase agreement pursuant to which we sold to Merck KGaA certain assets related to the manufacture of, and inventory of, Stimuvax, placebo and raw materials, and Merck KGaA agreed to assume certain liabilities related to the manufacture of Stimuvax and our obligations related to the lease of our Edmonton, Alberta, Canada facility. The aggregate purchase price paid by the buyers pursuant to the terms of the asset purchase agreement consisted of approximately $2.5 million, for aggregate consideration payable to us in connection with the new license agreement and the asset purchase agreement of approximately $13.0 million. In addition, 43 employees at our former Edmonton facility were transferred to an affiliate of Merck KGaA, which will significantly reduce our operating expenses in future periods.
     We have not developed a therapeutic product to the commercial stage. As a result, with the exception of the unusual effects of the transaction with Merck KGaA in December 2008, our revenue has been limited to date, and we do not expect to recognize any material revenue for the foreseeable future. In particular, our ability to generate revenue in future periods will depend substantially on the progress of ongoing clinical trials for Stimuvax and our small molecule compounds, our ability to obtain development and commercialization partners for our small molecule compounds, Merck KGaA’s success in obtaining regulatory approval for Stimuvax, our success in obtaining regulatory approval for our small molecule compounds, and Merck KGaA’s and our respective abilities to establish commercial markets for these drugs.
     Any adverse clinical results relating to Stimuvax or any decision by Merck KGaA to discontinue its efforts to develop and commercialize the product would have a material and adverse effect on our future revenues and results of operations and would be expected to have a material adverse effect on the trading price of our common stock. Our small molecule compounds are much earlier in the development stage than Stimuvax, and we do not expect to realize any revenues associated with the commercialization of our products for the foreseeable future.
     The continued research and development of our product candidates will require significant additional expenditures, including preclinical studies, clinical trials, manufacturing costs and the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our preclinical studies, all of our clinical trials and all of the manufacturing of cGMP material. We expect expenditures associated with these activities to increase in future years as we continue the development of our small molecule product candidates.
     We have incurred substantial losses since our inception. As of March 31, 2009, our accumulated deficit totaled $316.9 million. Financial results for the three months ended March 31, 2009 reflect a consolidated net loss from operations of $2.5 million or ($0.13) per share compared to $5.1 million or ($0.26) per share for the same period in 2008. We expect to continue to incur net losses as we expand our research and development activities with respect to our small molecules and processes for commercial scale manufacturing of our products. To date we have funded our operations principally through the sale of our equity securities, cash received through our strategic alliance with Merck KGaA, government grants, debt financings, and equipment financings. Because we have limited revenues and substantial research and development and operating expenses, we expect that we will in the future seek additional working capital funding from the sale of equity or debt securities.

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Key Financial Metrics
      Revenue
     Historically, our revenue has been derived from our contract research and development activities, payments under our collaborative agreements, and miscellaneous licensing, royalty and other revenues from ancillary business and operating activities. Our collaboration with Merck KGaA on the development of Stimuvax has contributed the substantial majority of our revenue. Prior to August 2007, revenue from our lead product candidate, Stimuvax, was reported under contract research and development revenue. From August 2007, when we entered into the amended and restated supply agreement with Merck KGaA to December 18, 2008, when we entered into the new license agreement with Merck KGaA, we retained the right to manufacture Stimuvax and Merck KGaA was obligated to purchase Stimuvax exclusively from us. As a result, revenue generated during that period was reported as contract manufacturing revenue. As a result of the entry into the December 2008 agreements with Merck KGaA, we will no longer generate revenues from the manufacture of Stimuvax in future periods.
      Contract Research and Development . Contract research and development revenue represents Merck KGaA’s contribution toward shared costs associated with Stimuvax clinical trials and clinical trial material provided to Merck KGaA related to Stimuvax. Effective March 1, 2006, we transitioned responsibility for all Stimuvax clinical development and regulatory activities and the related costs thereon to Merck KGaA. In January 2007, Merck KGaA initiated a global Phase 3 clinical trial under our collaboration assessing the efficacy and safety of Stimuvax as a potential treatment for inoperable NSCLC. We expect the clinical trial to include approximately 1,300 patients in approximately 30 countries. Because of the change in our responsibilities for Stimuvax clinical trials, our contract research and development revenue was reduced as we no longer receive reimbursements for shared clinical trial costs.
      Contract Manufacturing . As described above, as a result of the entry into the new license agreement with Merck KGaA in December 2008, we will not realize revenue from the manufacture of Stimuvax in future periods.
      Licensing Revenue from Collaborative Agreements . For periods presented until December 18, 2008 (when we entered into the new license agreement with Merck KGaA) licensing revenue consisted of upfront payments received and other payments made upon achievement of certain development milestones relating to transfers of know-how, clinical trials, regulatory approvals, and commercial development of Stimuvax under our agreements with Merck KGaA. Such revenue is amortized over the life of the relevant patents that had been subject to the former collaboration agreement. As a result of the entry into the new license agreement, the future performance obligations that required the payments to be amortized have been eliminated. Therefore, all existing deferred revenue relating to Stimuvax has been recognized in income as we have no more continuing involvement in the development efforts of Stimuvax. Future milestone payments will be recognized in income as they are received.
Expenses
      Research and Development/Manufacturing . Research and development/manufacturing expense consists of costs associated with research activities as well as costs associated with our product development efforts, conducting preclinical studies, and sale of clinical trial material. These expenses include external research and development expenses incurred pursuant to agreements with third party manufacturing organizations; technology access and licensing fees related to the use of proprietary third party technologies; employee and consultant-related expenses, including salaries, stock-based compensation expense; third party supplier expenses and an allocation of facility costs.
     To date, we have recognized research and development expenses, including those paid to third parties, as they have been incurred.
     We credit funding received from government research and development grants against research and development expense. These credits totaled $0.4 million and $0.3 million in the three months ended March 31, 2009 and 2008, respectively. These grants were Small Business Innovation Research, or SBIR, grants that we assumed in connection with our acquisition of ProlX on October 30, 2006. During 2008 we successfully applied for and received approval for a further $1.0 million grant for the period ended July 31, 2009.
     The majority of our research and development programs are at an early stage and may not result in any approved products. Product candidates that appear promising at early stages of development may not reach the market for a variety of reasons. For example, Merck KGaA cancelled our collaboration relating to Theratope only after receiving Phase 3 clinical trial results. We had made substantial investments over several years in the development of Theratope and terminated all development activities following the cancellation of our collaboration. Similarly, any of our continuing product candidates may be found to be ineffective or cause harmful side effects during clinical trials, may take longer to complete clinical trials than we have anticipated, may fail to receive

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necessary regulatory approvals, and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. As part of our business strategy, we may enter into collaboration agreements with larger third party pharmaceutical companies to complete the development and commercialization of our small molecule or other product candidates, and it is unknown whether or on what terms we will be able to secure collaboration arrangements for any candidate. For example, we intend to seek a collaboration partner for PX-12. In addition, it is difficult to provide the impact of collaboration arrangements, if any, on the development of product candidates. Establishing collaborative product development relationships with large pharmaceutical companies may or may not accelerate the time to completion or reduce our costs with respect to the development and commercialization of any product candidate.
     As a result of these uncertainties and the other risks inherent in the drug development process, we cannot determine the duration and completion costs of current or future clinical stages of any of our product candidates. Similarly, we cannot determine when, if, or to what extent we may generate revenue from the commercialization and sale of any product candidate. The timeframe for development of any product candidate, associated development costs, and the probability of regulatory and commercial success vary widely. As a result, other than with respect to Stimuvax, which is subject to our obligations under the agreements with Merck KGaA, we continually evaluate our product candidates and make determinations as to which programs to pursue and how much funding to direct to specific candidates. These determinations are typically made based on consideration of numerous factors, including our evaluation of scientific and clinical trial data and an ongoing assessment of the product candidate’s commercial prospects. We anticipate that we will continue to develop our portfolio of product candidates, which will increase our research and development expense in future periods. We do not expect any of our current candidates to be commercially available before 2012, if at all. Prior to the December 2008 agreements with Merck KGaA, we reported costs associated with the manufacturing and sale of Stimuvax clinical trial material as manufacturing expenses. As a result of the entry into the new license agreement with Merck KGaA in December 2008, the manufacture of Stimuvax clinical trial materials will be handled by an affiliate of Merck KGaA and, therefore, we will not incur manufacturing expenses for the foreseeable future.
      General and Administrative . General and administrative expense consists principally of salaries, benefits, stock-based compensation expense, and related costs for personnel in our executive, finance, accounting, information technology, and human resource functions. Other general and administrative expenses include professional fees for legal, consulting, and accounting services and an allocation of our facility costs.
      Depreciation . Depreciation expense consists of depreciation of the cost of plant and equipment such as scientific, office, manufacturing and computer equipment as well as depreciation of leasehold improvements.
      Investment and other income . Investment and other income consists of interest and other income on our cash and short-term investments and foreign exchange gains and losses. Our short term investments have typically consisted of Canadian or U.S. federal, state, or provincial debt securities, investment grade corporate debt securities and commercial paper, and term deposits or similar instruments of trust companies and banks, all with original maturities of between 90 days and one year at the time of purchase.
      Interest expense . Interest expense consists of interest payments under capital lease agreements for computer equipment. As of March 31, 2009, we did not have any long term capital lease agreements.
Critical Accounting Policies and Significant Judgments and Estimates
     We have prepared this Management’s Discussion and Analysis of Financial Condition and Results of Operations based on our condensed consolidated financial statements, which have been included elsewhere in this report. The preparation of our financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates of our consolidated financial statements as well as the reported amounts of revenue and expense during the periods presented. Significant estimates and assumptions are required in the determination of revenue recognition and to determine stock-based compensation. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates.
     Our critical accounting policies and significant estimates are detailed in our annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 30, 2009. There have been no material changes in our critical accounting policies and estimates and judgments since that date.

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Results of Operations for the Three Month Periods Ended March 31, 2009 and March 31, 2008
     The following table sets forth selected consolidated statements of operations data for each of the periods indicated.
Overview
                         
    Three Months Ended        
    March 31,     %
    2009   2008   Change
    (In millions, except per          
    share amounts)          
Revenue
  $     $ 2.0       N/M  +
Expenses
    2.5       7.1       (64.8 )%
Net loss
  $ 2.5     $ 5.1       (51.0 )%
Other comprehensive loss
          0.1       N/M  +
Comprehensive loss
  $ 2.5     $ 5.2       (51.9 )%
Basic and diluted loss per share
  $ 0.13     $ 0.26       (50.0 )%
 
+   Not meaningful
     As discussed in more detail below, the decrease in our net loss for the three months ended March 31, 2009 compared to the prior year period was attributable to a decrease in expenses related to the manufacture and sale of clinical trial material to Merck KGaA to support the Phase 3 trial of Stimuvax partially offset by a decrease in revenue.
Revenue
                         
    Three Months Ended        
    March 31,        
    2009     2008     % Change  
    (In millions)          
Contract manufacturing
  $     $ 1.7     NM+
License revenue from collaborative agreements
          0.3     NM+
 
                   
 
  $     $ 2.0     NM+
 
                   
 
+   Not meaningful
     As described under “Key Financial Metrics” we did not generate any contract manufacturing revenue in the three months ended March 31, 2009 as a result of the sale of our manufacturing rights to Merck KGaA in December of 2008. We do not expect to generate contract manufacturing revenue for the foreseeable future.
     Licensing revenue from collaborative agreements represents the amortization of milestone payments received in prior years. As described under “Key Financial Metrics—Revenue—Licensing Revenue from Collaborative Agreements,” these upfront milestone payments received under our agreements with Merck KGaA were deferred and recognized over the remaining patent life. The portion of the milestone payments that had been previously deferred were reported as revenue in December of 2008 as we no longer had future performance obligations under this agreement as a result of the sale of our manufacturing license rights to Merck KGaA. As a result, we no longer defer licensing revenue from this agreement but will recognize it income as they are received. We recognized $4,000 in licensing revenue from collaborative agreements in the three months ended March 31, 2009.

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   Research and Development / Manufacturing Expenses
                         
    Three Months Ended        
    March 31,        
    2009     2008     % Change  
    (In millions)          
Research and development
  $ 0.7     $ 2.3       (69.6 )%
Manufacturing
          2.1     NM  +
 
                     
 
  $ 0.7     $ 4.4       (84.1 )%
 
                   
     The combined research and development/manufacturing expenses was lower by $3.7 million in the three months ended March 31, 2009 due to our cessation of the manufacture of Stimuvax ($2.1 million), the transfer of the Edmonton facility to an affiliate of Merck KGaA ($1.4 million), manufacturing credits from Baxter ($0.4 million), offset by increased clinical trial costs ($0.4 million) and other development costs ($0.2 million).
     We expect our research and development costs to increase as we move our existing products through the development pipeline.
General and Administrative Expense
                         
    Three Months Ended    
    March 31,    
    2009   2008   % Change
    (In millions)        
General and administrative
  $ 1.8     $ 2.7       (33.3 )%
     The $0.9 million decrease in general and administrative expense for the three month period ended March 31, 2009 relative to the comparable prior year period was attributable to higher professional fees incurred in the prior year for the reincorporation of the Company into the United States ($0.7 million) and a reduction in headcount as a result of our December 2008 transaction with Merck KGaA (approximately $0.2 million).
Investment and Other Income, Net
                         
    Three Months Ended    
    March 31,    
    2009   2008   % Change
    (In millions)        
Investment and Other Income/(Expense), Net
  $     $ 0.1       N/M+  
 
+   Not meaningful
     The decrease in investment and other income in the three months ended March 31, 2009 compared to the previous year was primarily attributable to lower investment income recognized due to lower invested balances and lower yields during the three months ended March 31, 2009.
Liquidity and Capital Resources
Cash, Cash Equivalents, and Working Capital
     As of March 31, 2009, our principal sources of liquidity consisted of cash and cash equivalents of $15.4 million, and accounts receivable of $1.7 million. Our cash equivalents and short-term investments have historically been invested in money market funds, short-term obligations of the U.S. Treasury and Government of Canada, and commercial paper. Our accounts receivable primarily represent tax withholdings in Germany as a result of our sale of manufacturing rights to Merck KGaA in December 2008, which we expect to recover. Our primary source of cash has historically been proceeds from the issuance of equity securities, debt and equipment financings, and payments to us under licensing and collaboration agreements. These proceeds have been used to fund our losses.
     Our cash, cash equivalents and short-term investments were $15.4 million as of March 31, 2009 compared to $19.2 million as of December 31, 2008, a decrease of $3.8 million, or 19.8%, which reflects net operating expenditures during the period.
     As of March 31, 2009, our working capital (defined as current assets less current liabilities) was $15.6 million compared to $17.6 million as of December 31, 2008, a decrease of $2.0 million, or 11.4%. The decrease in working capital was primarily attributable to a $3.8 million decrease in cash and cash equivalents, a $0.1 million decrease in accounts receivable and a $0.2 million decrease in prepaid expenses, which was offset in part by a $1.7 million decrease in accounts payable and accrued liabilities and a $0.4 million increase in government grants receivable.

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     We believe that our currently available cash and cash equivalents, together with milestone payments we currently anticipate receiving from Merck KGaA under our license agreement, will be sufficient to finance our operations for at least the next 12 months. Nevertheless, we expect that we will require additional capital from time to time in the future in order to continue the development of products in our pipeline and to expand our product portfolio. We would expect to seek additional financing from the sale and issuance of equity or debt securities, but we cannot predict that financing will be available when and as we need financing or that, if available, the financing terms will be commercially reasonable. If we are unable to raise additional financing when and if we require, it would have a material adverse effect on our business and results of operations. To the extent we issue additional equity securities, our existing shareholders could experience substantial dilution.
     Our certificate of incorporation provides for the mandatory redemption of shares of our Class UA preferred stock if we realize “net profits” in any year. See “Note 11 — Share Capital — Redemption” of the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008 and the section of this quarterly report captioned “Item 1A — Risk Factors — If we are required to redeem the shares of our Class UA preferred stock, our financial condition may be adversely affected” for more information.
   Cash Flows From Operating Activities
     We used $3.7 million of cash in operating activities for the three months ended March 31, 2009, a decrease of $3.5 million compared to $7.2 million of cash in operating activities for the three months ended March 31, 2008. The decrease in cash used in operations is directly attributable to the sale of our manufacturing rights to Merck KGaA in December 2008 which eliminated all manufacturing activity, including product inventory. As a result of such transaction, we expect cash used in operations to be significantly lower for the current year compared to the year ended December 31, 2008.
   Cash Flows From Investing Activities
     Cash used in investing activities was approximately $38,000 in the three months ended March 31, 2009, compared to cash flow from investing activities of $1.1 million for the three months ended March 31, 2008. The decrease in cash inflows from investing activities was attributable primarily to net redemptions of short-term investments in the three months ended March 31, 2008.

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Contractual Obligations and Contingencies
     In our operations, we have entered into long-term contractual arrangements from time to time for our facilities, debt financing, the provision of goods and services, and acquisition of technology access rights, among others. The following table presents contractual obligations arising from these arrangements as of March 31, 2009:
                                         
    Payments Due by Period
            Less than                   More Than 5
    Total   1 Year   1-3 Years   3-5 Years   Years
                    (In thousands)        
Operating leases — premises
  $ 5,510     $ 493     $ 983     $ 1,159     $ 2,875  
     In May 2008, we entered into a sublease for an office facility in Seattle, Washington totaling approximately 17,000 square feet where we intend to consolidate certain of our operations. The sublease expires in December 17, 2011. In May 2008, we also entered into a lease directly with the landlord of the same facility, which will have a six year term beginning at the expiration of the sublease. The sublease provides for a base rent of $33,324 increasing to $36,354. The lease provides for a base rent of $47,715 increasing to $52,259 in 2018.
     In connection with the acquisition of ProlX, we may become obligated to issue additional shares of our common stock to the former stockholders of ProlX upon satisfaction of certain milestones. We may become obligated to issue shares of our common stock with a fair market value of $5.0 million (determined based on a weighted average trading price at the time of issuance) upon the initiation of the first Phase 3 clinical trial for a ProlX product. We may become obligated to issue shares of our common stock with a fair market value of $10.0 million (determined based on a weighted average trading price at the time of issuance) upon regulatory approval of a ProlX product in a major market.
     Under certain licensing arrangements for technologies incorporated into our product candidates, we are contractually committed to payment of ongoing licensing fees and royalties, as well as contingent payments when certain milestones as defined in the agreements have been achieved.
Guarantees and Indemnification
     In the ordinary course of our business, we have entered into agreements with our collaboration partners, vendors, and other persons and entities that include guarantees or indemnity provisions. For example, our agreements with Merck KGaA and the former stockholders of ProlX contain certain tax indemnification provisions, and we have entered into indemnification agreements with our officers and directors. Based on information known to us as of March 31, 2009, we believe that our exposure related to these guarantees and indemnification obligations is not material.
Off-Balance Sheet Arrangements
     During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for another contractually narrow or limited purpose.
Recent Accounting Pronouncements
     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157, which defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (“FSP”) FSP No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities that are not remeasured at fair value on a recurring basis until fiscal years beginning after November 15, 2008. In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.

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     For financial assets and financial liabilities, SFAS 157 was effective for us on January 1, 2008, on a prospective basis. The application of SFAS 157, as amended by FSP 157-3, to the financial assets and financial liabilities did not have a material effect on our financial condition or results of operations as of December 31, 2008.
     For non-financial assets and non-financial liabilities, SFAS 157 was effective for us on January 1, 2009, on a prospective basis. The application of SFAS 157, as amended, to the non-financial assets and non-financial liabilities did not have a material effect on our financial condition or results of operations.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
     As of March 31, 2009 and December 31, 2008, approximately $39,000 and $15,000 respectively, of our cash and cash equivalents were denominated in Canadian dollars. As a result, the impact of exchange rate fluctuations on the carrying value of our cash and cash equivalents, are minimal. Prior to December 2008, when we transferred our Canadian operations to Merck KGaA, we purchased goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent, in certain European currencies. Since January 2009, our Canadian dollar exposure to foreign exchange risk has diminished significantly. During the three months ending March 31, 2009 and the comparative periods presented, we did not enter into any foreign exchange forward or other derivative contracts in order to reduce our exposure to fluctuating foreign currency exchange rates.
Interest Rate Sensitivity
     We had cash and cash equivalents totaling $15.4 million and $19.2 million as of March 31, 2009 and December 31, 2008, respectively. These amounts were invested primarily in money market funds. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short term nature of our cash and cash equivalents. Declines in interest rates, however, would reduce future investment income. A 100 basis points decline in interest rates, occurring January 1, 2009 and sustained throughout the period ended March 31, 2009, would result in a decline in investment income of approximately $42,000 for that same period.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
     Under the supervision and with the participation of our management, including our chief executive officer and corporate controller and principal financial officer, we conducted an evaluation of the effectiveness, as of the end of the period covered by this quarterly report, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on this evaluation, our chief executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in our filings with the SEC under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
     There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
     The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
     We are not a party to any material legal proceedings with respect to us, our subsidiaries, or any of our material properties. From time to time, we may become involved in legal proceedings in the ordinary course of our business.
Item 1A. Risk Factors
      Set forth below and elsewhere in this report, and in other documents we file with the SEC are descriptions of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also affect our results of operations and financial condition.
Risks Relating to our Business
Our ability to continue as a going concern is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to complete the development, regulatory approval and commercialization of our product candidates.
     We have expended and continue to expend substantial funds in connection with our product development activities and clinical trials and regulatory approvals. Funds generated from our operations will be insufficient to enable us to bring all of our products currently under development to commercialization. Accordingly, we need to raise additional funds from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidates. The current financing environment in the United States, particularly for biotechnology companies like us, is exceptionally challenging and we can provide no assurances as to when such environment will improve. For these reasons, among others, we cannot be certain that additional financing will be available when and as needed or, if available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders. If adequate financing is not available, we may need to continue to reduce or eliminate our expenditures for research and development, testing, production and marketing for some of our product candidates. Our actual capital requirements will depend on numerous factors, including:
    our commercialization activities and arrangements;
 
    the progress of our research and development programs;
 
    the progress of our pre-clinical and clinical testing;
 
    the time and cost involved in obtaining regulatory approvals for our product candidates;
 
    the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;
 
    the effect of competing technological and market developments;
 
    the effect of changes and developments in our existing collaborative, licensing and other relationships; and
 
    the terms of any new collaborative, licensing and other arrangements that we may establish.
     We may not be able to secure sufficient financing on acceptable terms. If we cannot, we may need to delay, reduce or eliminate some or all of our research and development programs, any of which would be expected to have a material adverse effect on our business, operating results, and financial condition.

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Our near-term success is highly dependent on the success of our lead product candidate, Stimuvax, and we cannot be certain that it will be successfully developed or receive regulatory approval or be successfully commercialized.
     Our lead product candidate, Stimuvax, is currently being evaluated in a Phase 3 clinical trial for the treatment of non-small cell lung cancer, or NSCLC, and will require the successful completion of this and possibly other clinical trials before submission of a biologic license application, or BLA, or its foreign equivalent for approval. This process can take many years and require the expenditure of substantial resources. Pursuant to our agreement with Merck KGaA of Darmstadt, Germany, or Merck KGaA, Merck KGaA is responsible for the development and the regulatory approval process and any subsequent commercialization of Stimuvax. We cannot assure you that Merck KGaA will continue to advance the development and commercialization of Stimuvax as quickly as would be optimal for our stockholders. Clinical trials involving the number of sites and patients required for Food and Drug Administration, or FDA, approval of Stimuvax may not be successfully completed. If these clinical trials fail to demonstrate that Stimuvax is safe and effective, it will not receive regulatory approval. Even if Stimuvax receives regulatory approval, it may never be successfully commercialized. If Stimuvax does not receive regulatory approval or is not successfully commercialized, we may not be able to generate revenue, become profitable or continue our operations. Any failure of Stimuvax to receive regulatory approval or be successfully commercialized would have a material adverse effect on our business, operating results, and financial condition and could result in a substantial decline in the price of our common stock.
Stimuvax and our other vaccine product candidates are based on novel technologies, which may raise new regulatory issues that could delay or make FDA approval more difficult.
     The process of obtaining required FDA and other regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Stimuvax and our other vaccine therapies are novel; therefore, regulatory agencies may lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of Stimuvax and our other active vaccine products under development.
     To date, the FDA has not approved for commercial sale in the United States any active vaccine designed to stimulate an immune response against cancer. Consequently, there is no precedent for the successful development or commercialization of products based on our technologies in this area.
We have a history of net losses, we anticipate additional losses and we may never become profitable.
     Other than the year ended December 31, 2008, we have incurred net losses in each fiscal year since we commenced our research activities in 1985. The net income we realized in 2008 was due entirely to our December 2008 transactions with Merck KGaA and we do not anticipate realizing net income again for the foreseeable future. In addition, as of March 31, 2008, our accumulated deficit was approximately $316.9 million. Our losses have resulted primarily from expenses incurred in research and development of our product candidates. We do not know when or if we will complete our product development efforts, receive regulatory approval for any of our product candidates, or successfully commercialize any approved products. As a result, it is difficult to provide the extent of any future losses or the time required to achieve profitability, if at all. Any failure of our products to complete successful clinical trials and obtain regulatory approval and any failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue operations.
There is no assurance that we will be granted regulatory approval for any of our product candidates.
     Merck KGaA is currently testing our lead product candidate, Stimuvax, in an ongoing Phase 3 clinical trial for the treatment of NSCLC. PX-12 is currently in a Phase 2 clinical trial for pancreatic cancer. In addition, we are conducting Phase 1 clinical trials for PX-478 and PX-866. Our other product candidates remain in the pre-clinical testing stages. The results from pre-clinical testing and clinical trials that we have completed may not be predictive of results in future pre-clinical tests and clinical trials, and there can be no assurance that we will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries, including our company, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Regulatory approval may not be obtained for any of our product candidates. If our product candidates are not shown to be safe and effective in clinical trials, the resulting delays in developing other product candidates and conducting related pre-clinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.

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We are dependent upon our collaborative relationship with Merck KGaA to develop and commercialize our lead product candidate, Stimuvax.
     Under our collaboration with Merck KGaA for our lead product candidate, Stimuvax, Merck KGaA is entirely responsible for the development, manufacture and worldwide commercialization of Stimuvax and the costs associated with such development, manufacture and commercialization. With one exception, any future payments, including royalties to us, will depend on the extent to which Merck KGaA advances Stimuvax through development and commercialization. Merck KGaA has the right to terminate the collaboration agreement, upon 30 days’ written notice, if, in Merck KGaA’s reasonable judgment, Merck KGaA determines that there are issues concerning the safety or efficacy of Stimuvax which materially adversely affect Stimuvax’s medical, economic or competitive viability, provided that if we do not agree with such determination we have the right to cause the matter to be submitted to binding arbitration. Our ability to receive any significant revenue from Stimuvax is dependent on the efforts of Merck KGaA. If Merck KGaA fails to fulfill its obligations under this agreement, we would need to obtain the capital necessary to fund the development and commercialization of Stimuvax or enter into alternative arrangements with a third party. We could also become involved in disputes with Merck KGaA, which could lead to delays in or termination of our development and commercialization of Stimuvax and time-consuming and expensive litigation or arbitration. If Merck KGaA terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing Stimuvax would be materially and adversely affected.
We currently rely on third party manufacturers to supply our product candidates, which could delay or prevent the clinical development and commercialization of our product candidates.
     We currently depend on third party manufacturers for the manufacture of our small molecule product candidates. Any disruption in production, inability of these third party manufacturers to produce adequate quantities to meet our needs or other impediments with respect to development or manufacturing could adversely affect our ability to continue our research and development activities or successfully complete pre-clinical studies and clinical trials, delay submissions of our regulatory applications or adversely affect our ability to commercialize our product candidates in a timely manner, or at all.
     Merck KGaA currently depends on a single manufacturer, Baxter International Inc., or Baxter, for the supply of our lead product candidate, Stimuvax, and on Corixa Corp. (now a part of GlaxoSmithKline plc, or GSK) for the manufacture of the adjuvant in Stimuvax. If Stimuvax is not approved by 2015, Corixa/GSK may terminate its obligation to supply the adjuvant. In this case, we would retain the necessary licenses from Corixa/GSK required to have the adjuvant manufactured, but the transfer of the process to a third party would delay the development and commercialization of Stimuvax, which would materially harm our business.
     Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize a product candidate, the third party manufacturer may need to increase its manufacturing capacity, which may require the manufacturer to fund capital improvements to support the scale up of manufacturing and related activities. With respect to our small molecule product candidates, we may be required to provide all or a portion of these funds. The third party manufacturer may not be able to successfully increase its manufacturing capacity for our product candidate for which we obtain marketing approval in a timely or economic manner, or at all. If any manufacturer is unable to provide commercial quantities of a product candidate, we (or Merck KGaA, in the case of Stimuvax) will need to successfully transfer manufacturing technology to a new manufacturer. Engaging a new manufacturer for a particular product candidate could require us (or Merck KGaA, in the case of Stimuvax) to conduct comparative studies or utilize other means to determine equivalence between product candidates manufactured by a new manufacturer and those previously manufactured by the existing manufacturer, which could delay or prevent commercialization of our product candidates. If any of these manufacturers is unable or unwilling to increase its manufacturing capacity or if alternative arrangements are not established on a timely basis or on acceptable terms, the development and commercialization of our product candidates may be delayed or there may be a shortage in supply.
     Any manufacturer of our products must comply with current Good Manufacturing Practices, or cGMP, requirements enforced by the FDA through its facilities inspection program or by foreign regulatory agencies. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products.

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Any failure or delay in commencing or completing clinical trials for our product candidates could severely harm our business.
     Each of our product candidates must undergo extensive pre-clinical studies and clinical trials as a condition to regulatory approval. Pre-clinical studies and clinical trials are expensive and take many years to complete. The commencement and completion of clinical trials for our product candidates may be delayed by many factors, including:
    our or our collaborators’ ability to obtain regulatory approval to commence a clinical trial;
 
    our or our collaborators’ ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials;
 
    delays in patient enrollment and variability in the number and types of patients available for clinical trials;
 
    poor effectiveness of product candidates during clinical trials;
 
    safety issues or side effects;
 
    governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; and
 
    varying interpretation of data by the FDA and similar foreign regulatory agencies.
     It is possible that none of our product candidates will complete clinical trials in any of the markets in which we and/or our collaborators intend to sell those product candidates. Accordingly, we and/or our collaborators may not receive the regulatory approvals necessary to market our product candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial condition.
The failure to enroll patients for clinical trials may cause delays in developing our product candidates.
     We may encounter delays if we or our collaboration partners are unable to enroll enough patients to complete clinical trials. Patient enrollment depends on many factors, including, the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the trial. Moreover, when one product candidate is evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. Our product candidates are focused in oncology, which can be a difficult patient population to recruit.
     We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or be able to commercialize our product candidates.
     We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to assist in conducting our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.
Even if regulatory approval is received for our product candidates, the later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market.
     Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and may be subject to continuous review. After approval of a product, if any, there will be significant

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ongoing regulatory compliance obligations, and if we or our collaborators fail to comply with these requirements, we and/or our collaborators could be subject to penalties, including:
    warning letters;
 
    fines;
 
    product recalls;
 
    withdrawal of regulatory approval;
 
    operating restrictions;
 
    disgorgement of profits;
 
    injunctions; and
 
    criminal prosecution.
     Regulatory agencies may require us or our collaborators to delay, restrict or discontinue clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, we or our collaborators may be unable to submit applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by various regulatory agencies before we or our collaborators can commercialize the product described in the application. All statutes and regulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of such clinical trials. Any unanticipated costs or delays in our clinical studies could delay our ability to generate revenues and harm our financial condition and results of operations.
Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.
     We intend to have our product candidates marketed outside the United States. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To date, we have not filed for marketing approval for any of our product candidates and may not receive the approvals necessary to commercialize our product candidates in any market. The approval procedure varies among countries and can involve additional testing and data review. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could harm our business.
Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.
     Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will depend on, among other things, their acceptance by physicians, patients, third party payors such as health insurance companies and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:
    our ability to provide acceptable evidence of safety and efficacy;
 
    the prevalence and severity of adverse side effects;
 
    availability, relative cost and relative efficacy of alternative and competing treatments;

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    the effectiveness of our marketing and distribution strategy;
 
    publicity concerning our products or competing products and treatments; and
 
    our ability to obtain sufficient third party insurance coverage or reimbursement.
If our product candidates do not become widely accepted by physicians, patients, third party payors and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.
If we are unable to obtain, maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.
     Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and will depend in large part on our ability to:
    obtain patent and other proprietary protection for our technology, processes and product candidates;
 
    defend patents once issued;
 
    preserve trade secrets; and
 
    operate without infringing the patents and proprietary rights of third parties.
     As of March 31, 2008, we owned approximately 12 United States and corresponding foreign patents and patent applications and held exclusive or partially exclusive licenses to over 16 United States and corresponding foreign patents and patent applications. The degree of future protection for our proprietary rights is uncertain. For example:
    we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications;
 
    we might not have been the first to file patent applications for these inventions;
 
    others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products;
 
    it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable products and may not provide us with any competitive advantages;
 
    if our pending applications issue as patents, they may be challenged by third parties as infringed, invalid or unenforceable under U.S. or foreign laws;
 
    if issued, the patents under which we hold rights may not be valid or enforceable; or
 
    we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar or alternative technologies.
     The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent applications provide a competitive advantage, it is possible that patent applications owned by or licensed to us will not result in patents being issued, or that, if issued, the patents will not give us an advantage over competitors with similar products or technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates. For example, PX-12 was described in a publication over a year before the earliest priority date of a patent application covering PX-12 in the United States.

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Therefore, claims to the PX-12 composition cannot be obtained in the U.S. or in a foreign country. Similarly, claims covering the composition of PX-478 were only filed in the U.S. and Canada, which will prevent us from being able to obtain claims covering the composition of PX-478 in other foreign jurisdictions, including Europe.
     Even if any or all of our patent applications issue as patents, others may challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. We may not be successful in defending against any such challenges. Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to otherwise protect our proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use the challenged technologies without payment to us. There is no assurance that our patents, if issued, will not be infringed or successfully avoided through design innovation. Intellectual property lawsuits are expensive and would consume time and other resources, even if the outcome were successful. In addition, there is a risk that a court would decide that our patents, if issued, are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. If any of these events were to occur, our business, financial condition and results of operations would be materially and adversely effected.
     In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks and confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and it is possible that others will independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality and invention assignment agreement at the commencement of an employment or consulting relationship with us. However, it is possible that these agreements will not provide effective protection of our confidential information or, in the event of unauthorized use of our intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.
     If our vaccine technology or our product candidates, including Stimuvax, conflict with the rights of others, we may not be able to manufacture or market our product candidates, which could have a material and adverse effect on us and on our collaboration with Merck KGaA.
     Issued patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties, and we cannot be certain that we would be able to obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products. We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these patent applications have already resulted in the issuance of patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or cease activities. Certain parts of our vaccine technology, including the MUC1 antigen, originated from third party sources. These third party sources include academic, government and other research laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and it is difficult to provide the outcome of any such action
     There has been significant litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.
     There is no assurance that we would prevail in any legal action or that any license required under a third party patent would be made available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.

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If any products we develop become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, our ability to successfully commercialize our products will be impaired.
     Our future revenues, profitability and access to capital will be affected by the continuing efforts of governmental and private third party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control the cost of drugs through government regulation. We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign and private payors may take in response to the proposed reforms. Therefore, it is difficult to provide the effect of any implemented reform on our business. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development. If adequate coverage and reimbursement levels are not provided by government and third party payors for use of our products, our products may fail to achieve market acceptance and our results of operations will be harmed.
Foreign governments often impose strict price controls, which may adversely affect our future profitability.
     We intend to seek approval to market our future products in both the United States and foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to government control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our future product to other available therapies. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
     The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
    decreased demand for our product candidates;
 
    impairment of our business reputation;
 
    withdrawal of clinical trial participants;
 
    costs of related litigation;
 
    substantial monetary awards to patients or other claimants;
 
    loss of revenues; and
 
    the inability to commercialize our product candidates.
     Although we currently have product liability insurance coverage for our clinical trials for expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates

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in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.
     Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. We expect any product candidate that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products and products in development.
      Stimuvax . Currently, no product has been approved for maintenance therapy following induction chemotherapy for Stage III NSCLC, which is the indication for which Stimuvax is being developed. However, it is possible that existing or new agents will be approved for this indication. In addition, there are other vaccines in development for the treatment of NSCLC, including GSK’s MAGE A3 vaccine in Phase 3, NovaRx Corporation’s Lucanix in Phase 3, IDM Pharma Inc.’s IDM-2101 in Phase 2 and Transgene S.A.’s TG-4010, also in Phase 2.
      Small Molecule Products . PX-478 is a HIF-1 alpha inhibitor and we believe that at least one other company, Enzon Pharmaceutical, Inc., has a HIF-1 alpha anti-sense compound that is currently in Phase 1. We believe that other HIF — 1 alpha inhibitors are in preclinical development. There are also several approved targeted therapies for cancer and in development against which our small molecule products might compete. For example, Avastin is a direct inhibitor of vascular endothelial growth factor, or VEGF, and PX-478 is expected to lower levels of VEGF.
     PX-866 is an inhibitor of phosphoinositide 3-kinase (PI3K). We are aware of several companies that have entered clinical trials with competing compounds targeting the same protein. Among those are compounds being developed by Novartis (Phase 1/2), Semafore (Phase 1), Exelixis (Phase 1), Roche (Phase 1), Glaxo Smith Kline (Phase 1) and Calistoga (Phase 1).
     Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:
    design and develop products that are superior to other products in the market;
 
    attract qualified scientific, medical, sales and marketing and commercial personnel;
 
    obtain patent and/or other proprietary protection for our processes and product candidates;
 
    obtain required regulatory approvals; and
 
    successfully collaborate with others in the design, development and commercialization of new products.
     Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
If we are unable to enter into collaborations with partners to perform sales and marketing functions, or build these functions ourselves, we will not be able to commercialize our product candidates.
     We currently do not have any internal sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop a sales, marketing and distribution infrastructure or enter into collaborations with partners to perform these services for us. Under our agreements with Merck KGaA, Merck KGaA is responsible for developing and commercializing Stimuvax, and any problems with that relationship could delay the development and commercialization of

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Stimuvax. Additionally, we may not be able to enter into collaborations with respect to our product candidates not covered by the Merck KGaA agreements on commercially acceptable terms, if at all. Factors that may inhibit our efforts to commercialize our product candidates without collaboration partners include:
    our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
 
    the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
 
    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
 
    unforeseen costs and expenses associated with creating a sales and marketing organization.
     If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.
If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.
     Our success depends in large part upon our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management personnel. In addition, any difficulties retaining key personnel or managing this growth could disrupt our operations. Future growth will require us to continue to implement and improve our managerial, operational and financial systems, and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. In particular, we are in the process of recruiting a Chief Medical Officer to oversee our clinical development programs. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, we may not be able to effectively recruit, train and retain additional qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.
     Furthermore, we have not entered into non-competition agreements with all of our key employees. In addition, we do not maintain “key person” life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.
Our business is subject to increasingly complex environmental legislation that has increased both our costs and the risk of noncompliance.
     Our business may involve the use of hazardous material, which will require us to comply with environmental regulations. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials composition of many of our product candidates. If we use biological and hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages. Environmental regulations could have a material adverse effect on the results of our operations and our financial position. We maintain insurance under our general liability policy for any liability associated with our hazardous materials activities, and it is possible in the future that our coverage would be insufficient if we incurred a material environmental liability.
If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business, and our stock price.
     Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall

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dramatically. We and our independent registered public accounting firm have recently identified certain significant deficiencies in our internal controls.
     Remedying these significant deficiencies and maintaining proper and effective internal controls will require substantial management time and attention and may result in our incurring substantial incremental expenses, including with respect to increasing the breadth and depth of our finance organization to ensure that we have personnel with the appropriate qualifications and training in certain key accounting roles and adherence to certain control disciplines within the accounting and reporting function.
     Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company will have been detected. As discussed in this report, our management, together with our independent registered chartered accountants, identified a material weakness in our controls for the year ended December 31, 2007 and may identify additional deficiencies in the future.
     We are expending significant resources in maintaining and improving the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act. We cannot be certain that the actions we are taking to improve our internal controls over financial reporting will be sufficient or that we will be able to implement our planned processes and procedures in a timely manner. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals any material weaknesses or further significant deficiencies, the correction of any such material weaknesses or significant deficiencies could require additional remedial measures which could be costly and time-consuming. In addition, we may be unable to produce accurate financial statements on a timely basis. Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.
If we are required to redeem the shares of our Class UA preferred stock, our financial condition may be adversely affected.
     Our certificate of incorporation provides for the mandatory redemption of shares of our Class UA preferred stock if the Company realizes “net profits’ in any year. See “Note 11—Share Capital—Redemption” of the audited financial statements included elsewhere in our annual report on Form 10-K for the year ended December 31, 2008. For this purpose, “net profits ... means the after tax profits determined in accordance with generally accepted accounting principles, where relevant, consistently applied.”
     The certificate of incorporation does not specify the jurisdiction whose generally accepted accounting principles would apply for the redemption provision. At the time of the original issuance of the shares, we were a corporation organized under the federal laws of Canada, and our principal operations were located in Canada. In addition, the original purchaser and current holder of the Class UA preferred stock is a Canadian entity. In connection with our reincorporation in Delaware, we disclosed that the rights, preferences and privileges of the shares would remain unchanged except as required by Delaware law, and the mandatory redemption provisions were not changed. In addition, the formula for determining the price at which such shares would be redeemed is expressed in Canadian dollars. Although, if challenged, we believe that a Delaware court would determine that “net profits” be interpreted in accordance with Canadian GAAP, we cannot provide assurances that a Delaware court would agree with such interpretation.
     As a result of the December 2008 Merck KGaA transaction, we recognized on a one-time basis all deferred revenue relating to Stimuvax, under both U.S. GAAP and Canadian GAAP. Under U.S. GAAP this resulted in net income. However, under Canadian GAAP we were required to recognize an impairment on intangible assets which resulted in a net loss for 2008 and therefore do not intend to redeem any shares of Class UA preferred stock in 2009. If in the future we recognize net income under Canadian GAAP, or any successor to such principles, or if the holder of Class UA preferred stock were to challenge, and prevail in a dispute involving, the interpretation of the mandatory redemption provision, we may be required to redeem such shares which would have an adverse effect on our cash position. The maximum aggregate amount that we would be required to pay to redeem such shares is CAN $1.25 million.
     The holder of the Class UA preferred stock has declined to sign an acknowledgement that Canadian GAAP applies to the redemption provision and has indicated that it believes US GAAP should apply. As of the date of this report, the holder has not initiated a proceeding to challenge this interpretation; however, it may do so. If they do dispute this interpretation, although we believe a Delaware court would agree with the interpretation described above, we can provide no assurances that we would prevail in such a dispute. Further, any dispute regarding this matter, even if we were ultimately successful, could require significant resources which may adversely affect our results of operations.

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We may expand our business through the acquisition of companies or businesses or in-licensing product candidates that could disrupt our business and harm our financial condition.
     We may in the future seek to expand our products and capabilities by acquiring one or more companies or businesses or in-licensing one or more product candidates. Acquisitions and in-licenses involve numerous risks, including:
    substantial cash expenditures;
 
    potentially dilutive issuance of equity securities;
 
    incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
 
    difficulties in assimilating the operations of the acquired companies;
 
    diverting our management’s attention away from other business concerns;
 
    entering markets in which we have limited or no direct experience; and
 
    potential loss of our key employees or key employees of the acquired companies or businesses.
     In our recent history, we have not expanded our business through in-licensing and we have completed only one acquisition; therefore, our experience in making acquisitions and in-licensing is limited. We cannot assure you that any acquisition or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions and in-licenses. We cannot assure you that we would be able to make the combination of our business with that of acquired businesses or companies or in-licensed product candidates work or be successful. Furthermore, the development or expansion of our business or any acquired business or company or in-licensed product candidate may require a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our capital stock, which could dilute our current stockholders’ ownership interest, or securities convertible into our capital stock, which could dilute current stockholders’ ownership interest upon conversion.
Risks Related to the Ownership of Our Common Stock
Our common stock may become ineligible for listing on The NASDAQ Stock Market, which would materially adversely affect the liquidity and price of our common stock.
     Our common stock is currently listed for trading in the United States on The NASDAQ Global Market. We have in the past and could in the future be unable to meet The NASDAQ Global Market continued listing requirements, particularly if (i) the market value of our common stock is not at least $50 million or, in the alternative, our stockholders’ equity is not at least $10 million or (ii) our common stock fails to trade at or above $1.00 per share for an extended period of time.
     For example, on August 20, 2008 we disclosed that we had received a letter from The NASDAQ Stock Market indicating that we did not comply with the requirements for continued listing on The NASDAQ Global Market because we did not meet the maintenance standard in Marketplace Rule 4450(b)(1)(A) that specifies, among other things, that the market value of our common stock be at least $50 million or that or stockholders’ equity was at least $10 million. We were notified on March 12, 2009 that the NASDAQ Listing Qualifications Panel determined that our common stock could continue to be listed on The NASDAQ Global Market since we demonstrated, among other things, that our stockholders’ equity was at least $10 million as of December 31, 2008. In addition, on November 2, 2007, we received a letter from NASDAQ notifying Biomira, our predecessor corporation, that for the 30 consecutive trading days preceding the date of the letter, the bid price of Biomira’s common stock had closed below the $1.00 per share minimum required for continued inclusion on The NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 4450(a)(5). On January 2, 2008, we were notified by NASDAQ that our common stock had regained compliance with the minimum bid requirement for continued listing on The NASDAQ Global Market.

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     We have a history of losses and would expect that, absent the completion of a financing or other event that would have a positive impact on our stockholders’ equity, our stockholders’ equity would decline over time. Further, in the past year our stock price has traded near, and at times below, the $1.00 minimum bid price required for continued listing on NASDAQ. Although NASDAQ has provided relief from the $1.00 minimum bid price requirement as a result of the recent weakness in the stock market, it may not continue to do so. If we fail to maintain compliance with NASDAQ’s listing standards, and our common stock becomes ineligible for listing on The NASDAQ Stock Market the liquidity and price of our common stock would be adversely affected.
The trading price of our common stock may be volatile.
     The market prices for and trading volumes of securities of biotechnology companies, including our securities, have been historically volatile. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
    the results of pre-clinical testing and clinical trials by us, our collaborators and/or our competitors;
 
    technological innovations or new therapeutic products;
 
    governmental regulations;
 
    developments in patent or other proprietary rights;
 
    litigation;
 
    public concern as to the safety of products developed by us or others;
 
    comments by securities analysts;
 
    the issuance of additional shares of common stock, or securities convertible into, or exercisable or exchangeable for, shares of our common stock in connection with financings, acquisitions or otherwise;
 
    the perception that shares of our common stock may be delisted from The NASDAQ Stock Market;
 
    the incurrence of debt;
 
    general market conditions in our industry or in the economy as a whole; and
 
    political instability, natural disasters, war and/or events of terrorism.
     In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
Because we do not expect to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.
     We have never paid cash dividends on our common shares and have no present intention to pay any dividends in the future. We are not profitable and do not expect to earn any material revenues for at least several years, if at all. As a result, we intend to use all available cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating and financial conditions and on such other factors as our board of directors deems relevant. As a result, the success of an investment in

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our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
Future sales of shares by existing stockholders could cause our stock price to decline.
     As of March 31, 2008, we had outstanding 19,492,432 common shares. Of these shares, 2,979,623 common shares, approximately 15.3%, were held by former ProlX stockholders, including 800,239 common shares held by D. Lynn Kirkpatrick and 813,633 common shares held by Garth Powis. Dr. Kirkpatrick and Dr. Powis are married. The former ProlX stockholders were permitted to begin selling the shares they acquired in the acquisition in compliance with Rule 144 on the one year anniversary of the closing date, or October 30, 2007. As of March 31, 2009, the date on which they ceased to be our affiliates, Dr. Kirkpatrick and Dr. Powis could sell shares without complying with the volume restrictions, filing and other requirements applicable to affiliates under Rule 144. If any substantial amount of our common stock, including former ProlX stockholders, is sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. Our average trading volume is not large, and sales of large blocks of shares can have an adverse impact on the trading price of our common stock.
We expect to raise additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders would experience further dilution.
     We expect that we will seek to raise additional capital from time to time in the future. Such financings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. If we are able to consummate such financings, the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and would be expected to result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.
We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our common stock.
     Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:
    adversely affect the voting power of the holders of our common stock;
 
    make it more difficult for a third party to gain control of us;
 
    discourage bids for our common stock at a premium;
 
    limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
 
    otherwise adversely affect the market price or our common stock.
     We have in the past, and we may at any time in the future, issue additional shares of authorized preferred stock.

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Item 6. Exhibits
     
Exhibit    
Number   Description
 
   
10.1†
  Amended and Restated License Agreement between Biomira Management, Inc. and Merck KGaA, dated December 18, 2008.
 
   
12.1
  Ratio of Earnings to Fixed Charges.
 
   
31.1
  Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Shashi K. Karan, Corporate Controller, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2
  Certification of Shashi K. Karan, Corporate Controller, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
  Portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to an application requesting confidential treatment.

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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.
         
  ONCOTHYREON INC.
(Registrant)

 
 
Date: May 15, 2009  /s/ Shashi K. Karan    
  Corporate Controller and Corporate Secretary   
     
 

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INDEX OF EXHIBITS
     
Exhibit    
Number   Description
 
   
10.1†
  Amended and Restated License Agreement between Biomira Management, Inc. and Merck KGaA, dated December 18, 2008.
 
   
12.1
  Ratio of Earnings to Fixed Charges.
 
   
31.1
  Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Shashi K. Karan, Corporate Controller, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2
  Certification of Shashi K. Karan, Corporate Controller, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
  Portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to an application requesting confidential treatment.

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Exhibit 10.1
AMENDED AND RESTATED LICENSE AGREEMENT (2008)
This amended and restated agreement is between Biomira Management Inc., a Delaware corporation with offices located at Seattle, Washington (“ONCOTHYREON”), and Merck KGaA, a German corporation with offices located at Darmstadt, Germany (“MERCK”) and is effective as of December 18, 2008.
WHEREAS Biomira B.V. and MERCK entered into an amended and restated collaboration agreement effective as of May 7, 2001 (the “2001 COLLABORATION AGREEMENT”) in relation to, inter alia, the development of BLP25;
AND WHEREAS Biomira International Inc. and MERCK entered into an amended and restated supply agreement effective as of May 7, 2001 (the “2001 SUPPLY AGREEMENT”) in relation to, inter alia, the manufacture and supply by Biomira International Inc. to MERCK of BLP25;
AND WHEREAS the 2001 COLLABORATION AGREEMENT was further amended and restated by the parties thereto by agreement effective as of March 1, 2006 (the “2006 COLLABORATION AGREEMENT”);
AND WHEREAS the 2001 SUPPLY AGREEMENT was further amended and restated by the parties thereto by agreement effective as of March 1, 2006 (the “2006 SUPPLY AGREEMENT”);
AND WHEREAS on December 7, 2007, the respective rights and obligations of Biomira B.V. and Biomira International Inc. under the 2006 COLLABORATION AGREEMENT and the 2006 SUPPLY AGREEMENT were transferred and assigned to ONCOTHYREON;
AND WHEREAS ONCOTHYREON and MERCK now wish to combine and amend and restate the 2006 COLLABORATION AGREEMENT and the 2006 SUPPLY AGREEMENT as a single amended and restated license agreement, all upon the terms and subject to the conditions set forth in this AGREEMENT;
AND WHEREAS, ONCOTHYREON (and certain AFFILIATES of ONCOTHYREON) and EMD Serono Canada, Inc. (an AFFILIATE of MERCK), in conjunction with entering into this AGREEMENT, have entered into an asset purchase agreement (the “ASSET PURCHASE AGREEMENT”) pursuant to which ONCOTHYREON and the specified AFFILIATES of ONCOTHYREON have sold certain assets relating to BLP25 to EMD Serono Canada, Inc.;
NOW, THEREFORE, in consideration of the premises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby agreed to by the parties, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Meaning
Whenever a term is written in this AGREEMENT with all capital letters it shall have the following meaning:
 
+   DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION


 

2

  1.1.1   “ADVERSE EVENT” means, with respect to PRODUCT in a particular country in the TERRITORY, the occurrence of an adverse event with respect to PRODUCT as defined by applicable law or regulation in such country;
 
  1.1.2   “AFFILIATES” means any business entity that directly or indirectly controls, is controlled by, or is under common control with either party to this AGREEMENT. A business entity shall be deemed to “control” another business entity if it owns, directly or indirectly, more than fifty (50%) percent of the outstanding voting securities, capital stock, or other comparable equity or ownership interest of such business entity. If the laws of the jurisdiction in which such business entity operates prohibit ownership by a party of more than fifty percent (50%), control shall be deemed to exist at the maximum level of ownership allowed by such jurisdiction;
 
  1.1.3   “AGREEMENT” means this amended and restated license agreement, together with all schedules and appendices hereto and any amendments to or restatements of this amended and restated license agreement;
 
  1.1.4   “ASSET PURCHASE AGREEMENT” has the meaning attributed to that term in the seventh recital to this AGREEMENT;
 
  1.1.5   “BLP25” means ONCOTHYREON’s immunotherapeutic vaccine composed of a 25-amino acid sequence of the MUC1 cancer mucin, which vaccine is combined with the adjuvant monophosphoryl Lipid A and is encapsulated in a liposomal delivery system, together with (i) any IMPROVEMENTS thereto (such as liposomal IL-2 in a kit, synthetic Lipid A, or new delivery formats such as unit dose liquid formulations and unit dose syringes) owned by ONCOTHYREON or licensed in by ONCOTHYREON during the term of this AGREEMENT with the right to sublicense in the manner contemplated by this AGREEMENT and (ii) any PRODRUG thereof;
 
  1.1.6   “BGLP40” means any variant of ONCOTHYREON’s (or its AFFILIATES’) immunotherapeutic vaccine composed of two tandem repeats of the MUC1 cancer mucin, whether or not glycosylated, and whether or not lapidated, which vaccine is combined with an adjuvant and is encapsulated/incorporated in a liposomal delivery system, together with any improvements thereto owned by ONCOTHYREON (or its AFFILIATES) or licensed in by ONCOTHYREON (or its AFFILIATES);
 
  1.1.7   “CLINICAL DEVELOPMENT” means all activities required for MARKET APPROVAL of PRODUCT in the TERRITORY (including without limitation non-clinical and clinical trials, including but not limited to, toxicology and absorption, distribution, metabolism and elimination studies), as well as all clinical activities desirable for optimized marketing of PRODUCT in the TERRITORY (including without limitation Phase IIIb and Phase IV studies);
 
+   DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION


 

3

  1.1.8   “COMPETITIVE PRODUCT” means, with respect to PRODUCT in a particular country in the ROW TERRITORY, a cancer vaccine developed, marketed and SOLD by a third party (which, for greater certainty, shall exclude an AFFILIATE of a party to this AGREEMENT) for the treatment and/or prevention of cancer that elicits a MUC1 specific immune response (but excluding for greater certainty gene therapy products) and which has an adverse impact on SALES of PRODUCT in such country;
 
  1.1.9   “CONFIDENTIAL INFORMATION” has the meaning attributed to that term in section 8.1 of this AGREEMENT;
 
  1.1.10   “CORE PATENT COUNTRIES” shall mean the countries listed in appendix 1;
 
  1.1.11   “CORIXA LICENSE” means that certain adjuvant license agreement dated as of October 20, 2004 with Corixa Corporation, together with all schedules thereto and any amendments to or restatements of such adjuvant license agreement;
 
  1.1.12   “DANA-FARBER LICENSE” means that certain license agreement dated November 22, 1996 with the Dana-Farber Cancer Institute, Inc., together with all schedules thereto and any amendments to or restatements of such license agreement;
 
  1.1.13   “DEVELOPMENT PLAN” shall mean the development plans contemplated in section 3.1 of this AGREEMENT;
 
  1.1.14   “DISTRIBUTOR” means, with respect to PRODUCT in a particular country in the TERRITORY, a third party retained to market, promote and/or sell PRODUCT in such country, but excluding for greater certainty wholesalers and any such third party in circumstances where the laws of such country require the use of such third party to market, promote and/or sell PRODUCT in such country;
 
  1.1.15   “DOMAIN NAMES” has the meaning attributed to that term in section 5.12.6 of this AGREEMENT.
 
  1.1.16   “EFFECTIVE DATE” shall mean December 18, 2008, or such other date as ONCOTHYREON and MERCK may agree upon in writing;
 
  1.1.17   “END USER” shall mean, with respect to PRODUCT, any person at arm’s length with MERCK and its AFFILIATES that acquires PRODUCT in final form for end use, including physicians and hospitals but excluding DISTRIBUTORS and other agents;
 
  1.1.18   “FIELD” shall mean the use of BLP25 for the prevention and/or treatment of cancers in humans;
 
  1.1.19   “ICRT LICENSE” means that certain amended and restated license agreement dated November 14, 2000 with Imperial Cancer Research Technology Limited
 
+   DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION


 

4

      (now Cancer Research Technology Limited), together with all schedules thereto and any amendments to or restatements of such license agreement;
 
  1.1.20   “IFRS” means international financial reporting standards, consistently applied;
 
  1.1.21   “IMPROVEMENTS” means, collectively, all inventions, discoveries, improvements or other technology in the FIELD and all processes or uses relating thereto, whether or not patentable, that arise after the ORIGINAL EFFECTIVE DATE as a result of conduct under this AGREEMENT and relate directly to BLP25. For clarity, IMPROVEMENTS shall not include any inventions, discoveries, improvements or other technology that ONCOTHYREON, develops or acquires to the extent covering any active compound that is separate and clearly distinct from BLP25, notwithstanding the fact that such active compound may be useful as part of a combination therapy with BLP25. For further clarity, BGLP40 shall be deemed not to be an IMPROVEMENT;
 
  1.1.22   “INDICATION” means a specific health care indication (e.g., non-small cell lung cancer) for which PRODUCT is, as indicated on the label for the PRODUCT, specified for the treatment and/or prevention thereof;
 
  1.1.23   “JOINT IMPROVEMENT PATENT RIGHTS” has the meaning attributed to that term in section 10.1.1 of this AGREEMENT;
 
  1.1.24   “JOINT IMPROVEMENTS” has the meaning attributed to that term in section 9.1 of this AGREEMENT;
 
  1.1.25   “LAUNCH” shall mean, with respect to PRODUCT in a particular country in the TERRITORY, the date of the first arms’ length sale of PRODUCT in such country after receipt of MARKET APPROVAL for PRODUCT in such country;
 
  1.1.26   “MAJOR MARKET” shall mean any one of Germany, France, United Kingdom, Italy, Spain or Japan, and “MAJOR MARKETS” shall mean all of such countries;
 
  1.1.27   “MARKET APPROVAL” shall mean, with respect to PRODUCT in a particular country in the TERRITORY, the date upon which the last of all governmental or regulatory approvals required for the sale of PRODUCT in that country has been granted, including price approval for the PRODUCT (if required);
 
  1.1.28   “MARKETING PLAN” shall mean the marketing plans contemplated in section 3.1 of this AGREEMENT;
 
  1.1.29   “MERCK COST OF GOODS” includes, but is not limited to, with respect to PRODUCT in the TERRITORY, reasonable direct material, labour and subcontracted costs incurred by or on behalf of MERCK in connection with the procurement of raw materials, manufacture, vialing, testing, stability, releasing and shipment of PRODUCT, as well as the reasonable indirect costs of administration, salary, support, depreciation, facility rental, facility repair and
 
+   DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION


 

5

      maintenance, facility utilities, insurance and facility property taxes attributable to PRODUCT;
 
  1.1.30   “MERCK IMPROVEMENTS” has the meaning attributed to that term in section 9.3 of this AGREEMENT;
 
  1.1.31   “MERCK MANUFACTURING ACTIVITIES” has the meaning attributed to that term in section 9.10 of this AGREEMENT;
 
  1.1.32   “MERCK OFFER” has the meaning attributed to that term in section 2.7.2 of this AGREEMENT;
 
  1.1.33   “MUC1” means cancer associated mucin-1;
 
  1.1.34   “NA TERRITORY” shall mean, collectively, Canada (including Quebec) and its territories and the United States of America and its territories;
 
  1.1.35   “NEGOTIATION PERIOD” has the meaning attributed to that term in section 2.7.2 of this AGREEMENT;
 
  1.1.36   “NET SALES” shall mean, with respect to PRODUCT in a particular country, the sum of the gross amounts invoiced for all SALES (directly or indirectly) by MERCK, its AFFILIATES and their respective sublicensees, DISTRIBUTORS, assignees and transferees of PRODUCT to END USERS, less the following deductions from such invoiced amounts which are actually incurred in accordance with IFRS:
  1.1.36.1   credits or allowances actually granted for spoiled or damaged PRODUCT or with respect to returned or rejected PRODUCT, and for retroactive price adjustments;
 
  1.1.36.2   normal and customary trade, cash and quantity discounts, allowances, rebates and credits actually allowed, including allowances, adjustments, reimbursements, discounts, chargebacks and rebates given to healthcare organizations and any governmental or quasi-governmental body or agency, whether during the actual SALES/royalty period or not;
 
  1.1.36.3   sales, value added or similar taxes measured by the billing amount, when included in billing;
 
  1.1.36.4   freight, postage, shipping, and insurance charges related to delivery of PRODUCT from the applicable MERCK/distributor warehouse measured by the billing amount, when included in billing; and
 
  1.1.36.5   import and export duties actually paid.
Any refund or reimbursement of any of the foregoing amounts previously deducted from NET SALES shall be appropriately credited upon receipt thereof.
 
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If PRODUCT is SOLD in combination with another product or products (for greater certainty the use of adjuvant or other such PRODUCT enhancer stipulated to be mixed with PRODUCT shall not be considered to be “another product” for purposes of this section 1.1.36), “NET SALES” under such circumstances shall be calculated by multiplying the “NET SALES” of the combination by the fraction A/(A + B), in which A is the amount invoiced for PRODUCT when SOLD separately, and B is the total amount invoiced for any other product or products in combination when SOLD separately;
  1.1.37   “ONCOTHYREON IMPROVEMENTS” has the meaning attributed to that term in section 9.2 of this AGREEMENT;
  1.1.38   “ONCOTHYREON KNOW-HOW” means all proprietary information and data in the FIELD including but not limited to compounds, formulae, protocols, methods, techniques and results of experimentation and testing, which, except for published patent applications which are also included within this definition, is generally not known to the public, and which are owned by ONCOTHYREON or licensed in by ONCOTHYREON with the right to sublicense in the manner contemplated by this AGREEMENT, and which directly relate to research, CLINICAL DEVELOPMENT, use and/or sale of PRODUCT and/or the manufacture of PRODUCT. For greater certainty, ONCOTHYREON KNOW-HOW shall include ONCOTHYREON IMPROVEMENTS and IMPROVEMENTS licensed in by ONCOTHYREON with the right to sublicense in the manner contemplated by this AGREEMENT, which arise or occur after the ORIGINAL EFFECTIVE DATE and which fall within the ambit of the preceding sentence. Notwithstanding the foregoing, ONCOTHYREON KNOW-HOW shall not include any subsequently developed or acquired ONCOTHYREON KNOW-HOW to the extent covering any active compound that is separate and clearly distinct from PRODUCT, notwithstanding the fact that such active compound may be useful as part of a combination therapy with PRODUCT;
  1.1.39   “ONCOTHYREON PATENT RIGHTS” means all rights in the FIELD owned by ONCOTHYREON or licensed in by ONCOTHYREON with the right to sublicense in the manner contemplated by this AGREEMENT in any of the following patents: any patent issuing on any patent application identified in appendix 2, as well as any patent issuing from any continuing applications of the patents listed in appendix 3, such applications including any divisions, continuations, and continuation-in-part applications, as well as any patents issuing on any reissue and/or reexamination application, and including any patent term restoration or extension (i.e. supplemental protection certificates) of any such patents. ONCOTHYREON PATENT RIGHTS also includes all rights in the FIELD owned by ONCOTHYREON or licensed in by ONCOTHYREON with the right to sublicense in the manner contemplated by this AGREEMENT in any foreign patents which correspond to those described in the preceding sentence and in any patents that claim ONCOTHYREON IMPROVEMENTS, JOINT IMPROVEMENTS and/or IMPROVEMENTS. Notwithstanding the foregoing, ONCOTHYREON PATENT RIGHTS shall not include any subsequently
 
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      developed or acquired ONCOTHYREON PATENT RIGHTS to the extent covering any active compound that is separate and clearly distinct from PRODUCT, notwithstanding the fact that such active compound may be useful as part of a combination therapy with PRODUCT;
  1.1.40   “ONCOTHYREON TECHNOLOGY” means all ONCOTHYREON PATENT RIGHTS and/or ONCOTHYREON KNOW-HOW in the FIELD;
 
  1.1.41   “ORIGINAL EFFECTIVE DATE” means May 7, 2001;
 
  1.1.42   “PRODRUG” means a chemical precursor of PRODUCT which is to be cleaved in a human being directly into PRODUCT and/or a metabolic intermediate thereof, but excluding for greater certainty, antigen processing;
 
  1.1.43   “PRODUCT” shall mean BLP25;
 
  1.1.44   “RIGHTS” has the meaning attributed to that term in section 2.7.2 of this AGREEMENT;
 
  1.1.45   “ROW TERRITORY” shall mean all countries in the world except the NA TERRITORY;
 
  1.1.46   “SALE” includes, with respect to PRODUCT, the sale thereof to an END USER, and “SOLD” and “SELL” have a corresponding meaning;
 
  1.1.47   “SALES REPORT” has the meaning attributed to that term in section 7.2 of this AGREEMENT;
 
  1.1.48   “SELECTED DOMAIN NAMES” has the meaning attributed to that term in section 5.12.5 of this AGREEMENT;
 
  1.1.49   “SELECTED TRADEMARK” has the meaning attributed to that term in section 5.12.1 of this AGREEMENT;
 
  1.1.50   “TERRITORY” shall mean, collectively, the NA TERRITORY and the ROW TERRITORY;
 
  1.1.51   “THIRD PARTY LICENSES” means, collectively, the ICRT LICENSE, the DANA-FARBER LICENSE, the U of A LICENSE, the CORIXA LICENSE and any other third party license or sublicense of any technology included as part of the ONCOTHYREON TECHNOLOGY;
 
  1.1.52   “TRADEMARK” means the trademarks and logos initially selected for BLP25 pursuant to section 5.12 of this AGREEMENT, being the trademarks STIMUVAX, STENVAX, STIMRIS, SIATOPE, THEXOPE and JEXAVE;
 
  1.1.53   “TRADEMARK DOMAIN NAMES” has the meaning attributed to that term in section 5.12.5 of this AGREEMENT;
 
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  1.1.54   “TRANSFER NOTICE” has the meaning attributed to that term in section 2.7.2 of this AGREEMENT;
 
  1.1.55   “TRANSFER PERIOD” has the meaning attributed to that term in section 2.7.2 of this AGREEMENT;
 
  1.1.56   “U of A LICENSE” means that certain license dated December 1, 2001 with the University of Alberta in relation to the Samuels MUC1 liposomal formulation patents, together with all schedules thereto and any amendments to or restatements of such license agreement; and
 
  1.1.57   “VALID CLAIM” means, with respect to PRODUCT in a particular country in the TERRITORY, a claim of an issued and unexpired patent included within the ONCOTHYREON PATENT RIGHTS which has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise.
ARTICLE 2
LICENSE GRANT
Section 2.1 ONCOTHYREON License Grant
Subject to the terms and conditions of this AGREEMENT and only for the purpose of MERCK fulfilling its obligations and exercising its rights under this AGREEMENT, ONCOTHYREON hereby grants to MERCK a license (or in the case of ONCOTHYREON TECHNOLOGY that ONCOTHYREON has licensed from a third party, a sublicense) under the ONCOTHYREON TECHNOLOGY to make, use, import, develop, market and SELL and have made, used, imported, developed, marketed and SOLD PRODUCT in the FIELD in the NA TERRITORY and the ROW TERRITORY. Such license shall, except to the extent otherwise provided in this AGREEMENT or otherwise required by applicable law or regulation (as, for example, in the European Union under applicable competition law), be exclusive for the FIELD in the NA TERRITORY and in the ROW TERRITORY, subject to the rights of ONCOTHYREON under this AGREEMENT.
MERCK shall have the right to grant sublicenses (including the right to appoint DISTRIBUTORS of PRODUCT in the TERRITORY, including AFFILIATES of MERCK) under the licenses obtained under this AGREEMENT without the prior written consent of ONCOTHYREON provided however, that MERCK, when doing so, complies with the provisions of the THIRD PARTY LICENSES. MERCK shall be responsible for the acts and omissions of its DISTRIBUTORS, AFFILIATES, sublicensees and contract manufacturers and such acts and omissions shall be regarded for purposes of this AGREEMENT as the acts and omissions of MERCK. ONCOTHYREON agrees not to, and shall cause its wholly owned AFFILIATES not to assert against MERCK or its sublicensees any patent not included in the ONCOTHYREON PATENT RIGHTS that is or might be infringed by reason of MERCK or its sublicensees exercise of the licenses granted to MERCK under this section 2.1. Further, ONCOTHYREON covenants and agrees that for so long as MERCK has exclusive rights to all
 
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of the ONCOTHYREON TECHNOLOGY under this AGREEMENT, ONCOTHYREON shall not grant to any third party rights to the ONCOTHYREON TECHNOLOGY which would permit such third party to make, use, import, develop, market or SELL or have made, have used, imported, developed, marketed or SOLD PRODUCT for the treatment of disease in humans.
Section 2.2 Term of Grant
The licenses granted in section 2.1 of this AGREEMENT shall remain in force and effect on a country-by-country basis until the later of (a) the expiration or termination of the last to expire or terminate of VALID CLAIMS that cover PRODUCT in such country, and (b) the date which is the fifteenth (15 th ) anniversary of the LAUNCH of PRODUCT in any country in the TERRITORY. Upon the expiration of any such license grant as aforesaid, MERCK shall thereafter, subject to complying with any applicable provisions of the THIRD PARTY LICENSES (including the payment of any and all royalties and other amounts required to be paid thereunder), have a paid up, royalty free, non-exclusive license under the ONCOTHYREON TECHNOLOGY to make, use, import, develop, market and SELL, and have made, used, imported, developed, marketed and SOLD PRODUCT in such country in the FIELD.
Section 2.3 Third Party Licenses
With respect to the THIRD PARTY LICENSES to the extent not waived in writing by the licensor under such THIRD PARTY LICENSES, ONCOTHYREON and MERCK hereby incorporate by reference in this AGREEMENT any provisions specified in such THIRD PARTY LICENSES to be included in sublicenses of the subject matter of such THIRD PARTY LICENSES and to make such other amendments to this AGREEMENT as may be required in connection with the sublicensing of such THIRD PARTY LICENSES by ONCOTHYREON to MERCK. MERCK also agrees to cooperate with ONCOTHYREON and its AFFILIATES in fully complying in a timely manner with the terms of such THIRD PARTY LICENSES and, without limiting the generality of the foregoing, MERCK shall provide to ONCOTHYREON or its designated AFFILIATE in a timely manner or assist ONCOTHYREON or its designated AFFILIATE in preparing in a timely manner any and all reports, data, confirmations, approvals and other information that may be required by ONCOTHYREON or its designated AFFILIATE in connection therewith. ONCOTHYREON shall provide MERCK with examples of applicable reports previously utilized by ONCOTHYREON and/or its AFFILIATES for such purposes in order to assist MERCK in preparing the necessary reports.
Section 2.4 Bankruptcy or Insolvency
All rights and licenses granted to MERCK under this article 2 are, and shall be deemed to be, for purposes of applicable bankruptcy law (including section 365(n) of the United States Bankruptcy Code), licenses of rights to “intellectual property” (including as such term is defined under section 101(35A) of the United States Bankruptcy Code). The parties agree that MERCK, as a licensee of such rights under this AGREEMENT, shall retain and may fully exercise all of its rights and elections under such applicable bankruptcy law, including but not limited to MERCK’s rights to continue to exercise all rights licensed hereunder.
Section 2.5 Combination Products
ONCOTHYREON shall not prohibit MERCK from combining for use in the FIELD PRODUCT licensed under this AGREEMENT with any other product.
 
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Section 2.6 Covenant Not to Sue or Challenge
MERCK (on behalf of itself and its AFFILIATES and their respective sublicensees) agrees not to in any way challenge or contest (including by way of an allegation of misuse or non-infringement), nor assist any other person to challenge or contest, the validity or enforceability of any of the ONCOTHYREON TECHNOLOGY including, without limitation, the ONCOTHYREON PATENT RIGHTS.
Section 2.7 Exclusivity
  2.7.1   [+]
 
  2.7.2   [+] [Redaction continues for two pages]
 
  2.7.3   [+]
ARTICLE 3
REPORTING AND PLANS
Section 3.1 Reporting
On or before March 31, 2009 for the 2009 calendar year, and on or before January 1 for each subsequent calendar year during the TERM until first commercial SALE of PRODUCT has been made, MERCK shall provide ONCOTHYREON with a written development plan (the “DEVELOPMENT PLAN”) for PRODUCT which plan shall outline the CLINICAL DEVELOPMENT activities that MERCK plans to perform in such calendar year, as well as its manufacturing activities. Upon request of ONCOTHYREON, but no more than once per calendar quarter, MERCK shall provide ONCOTHYREON with a succinct written update (i.e. one or two pages) of any material change to the DEVELOPMENT PLAN as well as the progress made with respect to the CLINICAL DEVELOPMENT, including updates on the status of each ongoing clinical trial (including the number of patients) and regulatory filings. Upon first commercial SALE of PRODUCT, the DEVELOPMENT PLAN shall no longer be provided to ONCOTHYREON. In lieu of the DEVELOPMENT PLAN, MERCK shall provide ONCOTHYREON with a marketing plan (the “MARKETING PLAN”) which plan shall outline the marketing activities that MERCK plans to perform in the then current calendar year, as well as its manufacturing activities. Upon request of ONCOTHYREON, but no more than once per calendar quarter, MERCK shall provide ONCOTHYREON with a succinct written update (i.e. one or two pages) of any material change to the MARKETING PLAN as well as the progress made with respect to the marketing of PRODUCT, including updates on the status of each ongoing clinical trial (including the number of patients) and regulatory filings. Notwithstanding the foregoing, MERCK shall promptly following any change or event which may be material to ONCOTHYREON in relation to the subject matter of this AGREEMENT advise ONCOTHYREON together with full particulars thereof. Such reports and information shall be received by ONCOTHYREON subject to the obligations of Article 8.
 
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ARTICLE 4
DEVELOPMENT AND MARKET APPROVAL
— NA TERRITORY AND ROW TERRITORY
Section 4.1 CLINICAL DEVELOPMENT Studies and Costs
MERCK will be responsible, and have sole decision making authority, for conducting, or having conducted, all development (including CLINICAL DEVELOPMENT) and MARKET APPROVAL (including the preparation, submission and prosecution of all regulatory authority filings and applications required to obtain all necessary MARKET APPROVALS to SELL PRODUCT in, among others, the NA TERRITORY and the MAJOR MARKETS in the ROW TERRITORY) tasks necessary and/or desirable for CLINICAL DEVELOPMENT of PRODUCT in the NA TERRITORY and the ROW TERRITORY. Without limiting the generality of the foregoing, MERCK agrees to undertake the Phase III clinical trial of BLP25 in Stage III a/b non-small cell lung cancer described in the protocol set forth in appendix 4. MERCK will bear all costs in relation to all of the foregoing.
Section 4.2 Regulatory Filings
MERCK will, at MERCK’s expense, use commercially reasonable efforts to diligently pursue the preparation, submission and prosecution and maintenance of all regulatory authority filings and applications required to obtain and maintain all necessary and/or desirable MARKET APPROVALS to sell PRODUCT in each of the NA TERRITORY, the MAJOR MARKETS in the ROW TERRITORY and in such other countries in the ROW TERRITORY in which MERCK, using reasonable business judgment, determines to sell PRODUCT, all in a prudent and skilful manner in accordance with all applicable laws and regulations. To the extent not already assigned to MERCK, ONCOTHYREON shall promptly assign to MERCK all applications and filings held by ONCOTHYREON with any regulatory authority relating to the development, manufacture and commercialization of PRODUCT. MERCK shall keep ONCOTHYREON informed in respect of the matters which are the subject of this section 4.2 in the manner specified in Section 3, provided, however , that the final decision on the specifics of the preparation, submission and prosecution and maintenance of such regulatory filings and applications shall be made by MERCK. Upon the written request of MERCK, ONCOTHYREON, shall, or shall direct its AFFILIATE to, either withdraw or transfer to MERCK any drug master file submitted by ONCOTHYREON or any of its AFFILIATES in relation to the PRODUCT to any regulatory authority in the TERRITORY. For clarity, any contact to regulatory authorities anywhere in the TERRITORY that relate to the PRODUCT shall be MERCK’s or its AFFILIATES’ or sublicensees’ responsibility, and any contact made by any such authority to ONCOTHYREON or any of its AFFILIATES in relation to the PRODUCT shall be referred promptly by ONCOTHYREON or its AFFILIATE to MERCK.
Section 4.3 MARKET APPROVAL Owner
MERCK shall be the record owner of all MARKET APPROVALS required for SALE of PRODUCT in the NA TERRITORY and the ROW TERRITORY. Forthwith upon the expiration or termination of this AGREEMENT with respect to PRODUCT in a particular country in the ROW TERRITORY or the NA TERRITORY, or if any of the licenses granted by ONCOTHYREON to MERCK in this AGREEMENT become non-exclusive, MERCK shall in a timely manner comply with section 11.6 of this AGREEMENT in relation to PRODUCT in such country.
 
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Section 4.4 Know-How Documentation
In an effort to support the transfer by ONCOTHYREON to MERCK of the ONCOTHYREON KNOW-HOW, ONCOTHYREON agrees (to the extent legally permitted to do so) to make available to MERCK and its designated AFFILIATE (with the right to print or photocopy documents at MERCK’s cost) for a period of two (2) years following the EFFECTIVE DATE, (a) all ONCOTHYREON KNOW-HOW, including (to the extent falling within the definition of ONCOTHYREON KNOW-HOW) any preclinical data, clinical data, assays and associated materials, protocols, plans, reports, procedures (including standard operating procedures), and any other similar information, that is necessary or useful (acting reasonably) to develop, manufacture, test, release, seek regulatory approval for, or commercialize BLP25, all to the extent in ONCOTHYREON’s possession or control, (b) copies of all material communications specifically in relation to BLP25 with regulatory authorities in the possession or control of ONCOTHYREON, (c) copies of all material communications with third parties related specifically to the development and manufacture of BLP25 (e.g. communication with contract manufacturing organizations, vendors, contractors) in the possession or control of ONCOTHYREON, and (d) copies of all material documents that ONCOTHYREON or its AFFILIATES received from third parties related specifically to the development and manufacture of BLP25 (e.g. standard operating procedures, regulatory filing documents, batch records, certificates received from contract manufacturing organizations, vendors, contractors), in the possession or control of ONCOTHYREON.
ARTICLE 5
PRODUCT MARKETING — NA TERRITORY AND ROW TERRITORY
Section 5.1 Costs and Expenses
MERCK shall bear all costs and expenses associated with the manufacturing, promoting, marketing, distributing and SALE of PRODUCT in the TERRITORY.
Section 5.2 Sales Force Training
MERCK shall be responsible for developing or having developed (in accordance with all applicable legal and regulatory requirements) training programs and materials concerning promotion of PRODUCT in the TERRITORY. MERCK shall also be responsible for developing or having developed (in accordance with all applicable legal and regulatory requirements) training programs and materials concerning technical aspects of PRODUCT.
Section 5.3 Costs of Sales Representatives and Specialty Personnel
MERCK shall be responsible for all costs and expenses related to its sales representatives (whether employees or contracted) in the TERRITORY. MERCK shall be responsible for all costs and expenses related to “specialty” personnel (including managed care representatives, professional relations, patient advocacy, reimbursement, specialty sales, and the like) in the TERRITORY.
Section 5.4 Distribution
MERCK shall have the sole responsibility for distribution of PRODUCT in the TERRITORY. In fulfilling its obligations with respect to the distribution of PRODUCT in the TERRITORY, MERCK shall use commercially reasonable efforts consistent with accepted pharmaceutical practices. All costs incurred in relation to such distribution shall be borne by MERCK.
 
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Section 5.5 Label Content
MERCK shall be responsible for ensuring that the label and product insert for any PRODUCT SOLD in the TERRITORY shall comply with all legal, governmental and regulatory requirements. Insofar as it is not contrary to law or regulation in any particular country in the TERRITORY, the box and package insert, and the label to the extent that space permits, shall include prominent reference to MERCK (or, if applicable, any AFFILIATE of MERCK designated by MERCK) as marketer and manufacturer of the PRODUCT and to ONCOTHYREON or its designated AFFILIATE as licensor. Any trademark or other content as may be from time to time required pursuant to the CORIXA LICENSE shall be marked on every PRODUCT label and/or insert in the manner required under the CORIXA LICENSE.
Section 5.6 Product Price
MERCK shall determine the SALES price for PRODUCT SOLD in the TERRITORY.
Section 5.7 Booking Sales
MERCK shall book all SALES of PRODUCT in the TERRITORY.
Section 5.8 Advertising and Promotion
MERCK shall be responsible for determining the sales strategy for SALE of PRODUCT in the TERRITORY, and shall create, or have created all materials for advertising and promotion of PRODUCT in the TERRITORY. All costs and expenses incurred in relation to such advertising and promotion shall be borne by MERCK.
Section 5.9 Customer Complaints and Medical Inquiries
MERCK (or its designated AFFILIATE) shall be responsible for handling all customer complaints and inquiries regarding PRODUCT in the TERRITORY. All complaints and inquiries received by ONCOTHYREON or its agents shall be promptly referred to MERCK for response according to applicable law. MERCK shall use commercially reasonable efforts to handle such matters in a timely, prudent and skilful manner, in compliance with applicable laws, regulations, rules, policies and regulatory requirements and in accord with MERCK’s standard operating procedures. MERCK shall keep ONCOTHYREON informed in a timely manner with respect to MERCK’s activities in regard to customer complaints and inquiries for PRODUCT. All costs incurred in responding to customer complaints and inquiries shall be borne by MERCK.
Section 5.10 Adverse Event Reporting
MERCK (or its designated AFFILIATE) shall be responsible for reporting all ADVERSE EVENTS regarding PRODUCT to the appropriate regulatory authorities in the TERRITORY. All information received by ONCOTHYREON or its agents shall be promptly transferred according to applicable law to MERCK for handling. MERCK shall handle such matter in a timely, prudent and skilful manner, in compliance with all applicable laws, rules, policies, regulations and regulatory requirements, and in accord with MERCK’s standard operating procedures. MERCK shall keep ONCOTHYREON informed in a timely manner with respect to MERCK’s activities with respect to ADVERSE EVENT reporting for PRODUCT. All costs incurred in responding to and reporting ADVERSE EVENTS regarding PRODUCT in the TERRITORY shall be borne by MERCK.
 
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Section 5.11 PRODUCT Recall
MERCK (or its designated AFFILIATE) shall be responsible for initiating and implementing all PRODUCT recalls required by controlling regulatory agencies and for all voluntary PRODUCT market withdrawals in the TERRITORY. MERCK shall handle such matters in a timely, prudent and skilful manner, in compliance with all applicable laws, rules, policies, regulations and regulatory requirements, and in accord with MERCK’s standard operating procedures. MERCK shall keep ONCOTHYREON informed in a timely manner with respect to MERCK’s activities in regard to recalls and market withdrawals. All costs incurred in responding to recalls and market withdrawals shall be borne by MERCK.
Section 5.12 Trademarks and Branding
  5.12.1   Ownership and Filing. PRODUCT shall be marketed and sold in the TERRITORY under the applicable trademark selected by MERCK (the “SELECTED TRADEMARK”) which SELECTED TRADEMARK can be a TRADEMARK or any other trademark selected by MERCK. ONCOTHYREON acknowledges that MERCK shall be the owner of the TRADEMARKS in the TERRITORY. ONCOTHYREON shall not knowingly do or cause to be done any act or thing contesting, challenging or, in any way, impairing or intending to impair any part of MERCK’s right, title or interest in the TRADEMARKS for the duration of this AGREEMENT. Further, ONCOTHYREON shall not use or register in the TERRITORY any trademark which is similar or identical to any of the TRADEMARKS on similar or identical goods or services to those which are the subject of this AGREEMENT for the duration of this AGREEMENT. MERCK shall diligently pursue the filing, maintenance and defence of the TRADEMARKS and the SELECTED TRADEMARKS in the TERRITORY. All trademark-related costs (including, without limitation, legal, third party, branding, filing, maintenance and other such costs) of developing, prosecuting, registering, maintaining and defending the TRADEMARKS and the SELECTED TRADEMARKS shall be borne by MERCK as of March 1, 2006.
 
  5.12.2   Trademark License. MERCK hereby grants, in the event that ONCOTHYREON or an AFFILIATE of ONCOTHYREON obtains the right to manufacture and/or SELL PRODUCT under this AGREEMENT, to ONCOTHYREON and its designated AFFILIATES a royalty free, non-exclusive license to use, display, reproduce and publish the TRADEMARKS and/or the SELECTED TRADEMARKS in connection with the manufacture, use, marketing, promotion, distribution and SALE of PRODUCT in any countries in the TERRITORY where ONCOTHYREON or an AFFILIATE of ONCOTHYREON has the right to manufacture and/or SELL PRODUCT under this AGREEMENT for so long as such right to manufacture and/or SELL exists under this AGREEMENT. In addition to the foregoing, ONCOTHYREON shall have the right to use the TRADEMARKS and/or the SELECTED TRADEMARKS in connection with corporate disclosure and corporate information dissemination. ONCOTHYREON and its designated AFFILIATES shall have no right to grant sublicenses under such license without the prior written consent of MERCK (such consent not to be unreasonably withheld). Any goodwill arising from the use of the TRADEMARKS and/or the SELECTED TRADEMARKS by ONCOTHYREON
 
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      or its designated AFFILIATES shall inure to the benefit of MERCK. Further, such use shall be in accordance with the applicable laws in the relevant jurisdiction, as well as with any reasonable requirements of any brand guide that may be provided by MERCK from time to time. When using any of the TRADEMARKS and/or the SELECTED TRADEMARKS under license, ONCOTHYREON and its designated AFFILIATES shall use the identifiers Ô or â , as appropriate.
 
  5.12.3   Assignment. MERCK shall, at MERCK’s cost, arrange for assignment of the trademarks STENVAX, STIMRIS, SIATOPE, THEXOPE and JEXAVE from ONCOTHYREON or its AFFILIATES to MERCK. Until such assignment is completed, ONCOTHYREON shall, at MERCK’s cost, provide reasonable cooperation and assistance with respect to such assignment, including but not limited to providing documents in ONCOTHYREON’s possession (including its AFFILIATES and external law firm) and signatures as requested by the relevant trademark offices. A list of currently identified trademark registrations and applications for STENVAX, STIMRIS, SIATOPE, THEXOPE and JEXAVE are included in appendix 5. MERCK confirms that ONCOTHYREON and its AFFILIATES are released from all other obligations under the STIMUVAX letter agreement dated December 21, 2004 including, without limitation, the 40,000 Euro payment.
 
  5.12.4   Trademark Infringement. For countries in which the TRADEMARKS and/or SELECTED TRADEMARKS are used under license by ONCOTHYREON and/or its AFFILIATES, ONCOTHYREON shall:
  5.12.4.1   promptly report to MERCK particulars of any use by any other party of a trademark, trade name or mode of advertising which comes to ONCOTHYREON’s or its designated AFFILIATES’ attention and which might qualify as an infringement of the TRADEMARKS and/or SELECTED TRADEMARKS or as unfair competition; and
 
  5.12.4.2   in the event that it comes to the attention of ONCOTHYREON or its designated AFFILIATES that any party alleges that the TRADEMARKS and/or SELECTED TRADEMARKS are invalid or that they infringe any rights of a third party, or that the TRADEMARKS are open to any other form of attack, ONCOTHYREON or its designated AFFILIATES shall promptly report the matter to MERCK.
In any event described in this section ONCOTHYREON shall not take any action, either amicably or legally, and shall let MERCK or a nominee of MERCK take any action which MERCK, acting reasonably, deems necessary, provided, however, that nothing herein shall prevent ONCOTHYREON from defending and/or protecting its own reasonable interests. ONCOTHYREON or its designated AFFILIATES, upon MERCK’s reasonable request and at MERCK’s expense, shall cooperate in any action so taken to the extent that such cooperation is not materially adverse in interest to ONCOTHYREON and/or its AFFILIATES.
 
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  5.12.5   Domain Names. Any domain names related to the TRADEMARKS (the “TRADEMARK DOMAIN NAMES”) and/or the SELECTED TRADEMARKS (the “SELECTED DOMAIN NAMES”) in the TERRITORY shall be selected by MERCK. ONCOTHYREON acknowledges that MERCK shall be the owner of the TRADEMARK DOMAIN NAMES in the TERRITORY. ONCOTHYREON shall not knowingly do or cause to be done any act or thing contesting, challenging or, in any way, impairing or intending to impair any part of MERCK’s right, title or interest in the TRADEMARK DOMAIN NAMES in the TERRITORY for the duration of this AGREEMENT. Further, ONCOTHYREON shall not use or register in the TERRITORY any domain name which is similar or identical to any of the domain names related to the TRADEMARKS on similar or identical goods or services which are the subject of this AGREEMENT for the duration of this AGREEMENT. MERCK shall be responsible for the filing, maintenance and defence of the TRADEMARK DOMAIN NAMES and the SELECTED DOMAIN NAMES in the TERRITORY. All domain name-related costs (including, without limitation, legal, third party, filing, maintenance and other such costs) of prosecuting, registering, maintaining and defending the TRADEMARK DOMAIN NAMES and the SELECTED DOMAIN NAMES or any alternate or additional domain names shall be borne by MERCK.
  5.12.6   Domain License. MERCK hereby grants to ONCOTHYREON and its designated AFFILIATES a royalty free, non-exclusive license to use, display, reproduce and publish the TRADEMARK DOMAIN NAMES, the SELECTED DOMAIN NAMES or any alternate or additional domain names under the same terms and under the same circumstances as set forth in Section 5.12.2.
Section 5.13 General Diligence
Subject to section 14.1 and without being limited by section 5.14, MERCK shall, at MERCK’s expense, use commercially reasonable efforts to diligently pursue the development (including CLINICAL DEVELOPMENT), commercialization, manufacture (including commercial scale-up), registration, promotion, marketing and SALE of PRODUCT in a prudent and skilful manner in accordance with the DEVELOPMENT PLAN and/or the MARKETING PLAN then in effect, which plans will contain development, manufacturing and marketing activities representing commercially reasonable efforts, and in accordance with all applicable laws and regulations. MERCK will bear all costs with respect thereto.
Section 5.14 Excused Performance
In addition to the terms of section 14.1, MERCK’s performance under this AGREEMENT with respect to PRODUCT in a particular country is expressly conditioned upon the continuing absence of any safety or efficacy or regulatory event with respect to PRODUCT in such country which materially limits, reverses or restricts the development and/or marketing of such PRODUCT in such country. MERCK’s obligations to develop, promote and/or SELL such PRODUCT in such country under this AGREEMENT shall be delayed or suspended so long as any such condition exists.
 
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Section 5.15 Japanese Market
Without derogating from section 5.13, in relation to Japan, MERCK shall, as soon as reasonable considering the Japanese market and in any event no later than [+] after positive clinical endpoint data (with no material toxicology issue) being available from a pivotal Phase II or Phase III trial with respect to PRODUCT, commence discussions with the applicable Japanese regulatory authorities with respect to initiating any required clinical trials in Japan and finalize a comprehensive CLINICAL DEVELOPMENT plan for Japan for PRODUCT (which shall include a reasonable timeframe for obtaining regulatory approval in Japan) and thereafter use commercially reasonable efforts to pursue such CLINICAL DEVELOPMENT plan within the timeframes stipulated therein. Notwithstanding any provision to the contrary in this AGREEMENT, if MERCK fails to meet the requirements of this section 5.15 with respect to Japan, then this AGREEMENT shall cease to apply to PRODUCT in relation to Japan and all rights related to PRODUCT in Japan shall revert to ONCOTHYREON.
ARTICLE 6
CONSIDERATION — NA TERRITORY AND ROW TERRITORY
Section 6.1 Consideration for Licenses Granted
In consideration for the licenses granted by ONCOTHYREON to MERCK under article 2, MERCK shall, in the event that MERCK sublicenses, assigns, transfers or otherwise relinquishes all or any of its rights and/or obligations under this AGREEMENT relating to the NA TERRITORY or any part thereof to a third party (which term for purposes of this section 6.1 shall not include an AFFILIATE of MERCK as long as all such rights and/or obligations remain with such AFFILIATE of MERCK, or a contract manufacturing organization for the development, testing, release or supply of PRODUCT selected by MERCK) and receives upfront payments, milestone payments, royalty payments or other monetary consideration, or in-kind consideration of substantive value, in respect thereof, pay ONCOTHYREON [+] within thirty (30) days of the effective date of such sublicense, assignment, transfer or relinquishment, provided that no such payment will be due in connection with the transfer or sale by MERCK of all or substantially all of its business or in the event of the merger or consolidation of MERCK with another corporation.
Section 6.2 Consideration — Milestone and Other Payments
  6.2.1   Upfront and Manufacturing Process Transfer Milestone Payments. In consideration for the licenses granted by ONCOTHYREON to MERCK under Article 2 and other benefits afforded MERCK under this AGREEMENT, and in addition to the payment provided for in section 6.1 of this AGREEMENT, the pre LAUNCH milestone payments provided for in section 6.2.2 of this AGREEMENT, the post LAUNCH milestone payments provided for in section 6.2.3 of this AGREEMENT and the royalty payments provided for in section 6.3 of this AGREEMENT, MERCK shall make the payments specified in this section 6.2.1 to ONCOTHYREON:
  6.2.1.1   Ten Million Four Hundred Fifty Two Thousand Four Hundred Two Dollars and Fifty Eight Cents US ($10,452,402.58 US) on the Effective Date;
 
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  6.2.1.2   the remaining manufacturing process transfer milestone payment of [+] within thirty (30) days of the first manufacturing run of PRODUCT (by MERCK or any AFFILIATE or sub-supplier of MERCK) after upscale of the current process to the commercial process, provided that, notwithstanding whether or not the manufacturing process transfer milestone specified in this section 6.2.1.2 has been met (at all or in part), such milestone payment (to the extent not previously paid by MERCK to ONCOTHYREON) shall be due and payable by MERCK to ONCOTHYREON on December 31, 2009;
  6.2.1.3   MERCK shall be responsible for payment of and shall pay in a timely manner all royalties and other amounts payable pursuant to the CORIXA LICENSE to the extent agreed to by CORIXA, and if no such agreement is obtained, reimburse ONCOTHYREON (or its designated AFFILIATE) for any such payments to CORIXA; and
  6.2.1.4   for clarification, each of the payments of MERCK identified in this section 6.2.1 is non-refundable to MERCK, and each of the payments identified in Sections 6.2.1.1 and 6.2.1.2 shall be made only once.
  6.2.2   Pre LAUNCH Milestone Payments. In consideration for the licenses granted by ONCOTHYREON to MERCK under Article 2 and other benefits afforded MERCK under this AGREEMENT, and in addition to the payment provided for in section 6.1 of this AGREEMENT, the upfront and other payments provided for in section 6.2.1 of this AGREEMENT, the post LAUNCH milestone payments provided for in section 6.2.3 of this AGREEMENT and the royalty payments provided for in section 6.3 of this AGREEMENT, MERCK shall make the following payments to ONCOTHYREON:
  6.2.2.1   with respect to BLP25 for the first INDICATION:
  6.2.2.1.1   MERCK shall within thirty (30) days of the date of submission of a BLA to the FDA for BLP25 for such first INDICATION, pay ONCOTHYREON [+];
 
  6.2.2.1.2   MERCK shall pay ONCOTHYREON [+] within [+] of the date of submission to the applicable regulatory authority in the first MAJOR MARKET of a BLA (or its equivalent in the jurisdiction in question) for BLP25 for such first INDICATION;
 
  6.2.2.1.3   MERCK shall pay ONCOTHYREON [+] within thirty (30) days of the date of receipt of approval of the BLA submitted to the FDA for BLP25 for such first INDICATION;
 
  6.2.2.1.4   MERCK shall pay ONCOTHYREON [+] within thirty (30) days of the date of receipt of approval of the BLA
 
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      (or its equivalent in the jurisdiction in question) submitted to the applicable regulatory authority in the first MAJOR MARKET for BLP25 for such first INDICATION;
  6.2.2.2   with respect to BLP25 for the second INDICATION:
  6.2.2.2.1   MERCK shall within thirty (30) days of the date of submission of a BLA to the FDA for BLP25 for such second INDICATION pay ONCOTHYREON [+];
 
  6.2.2.2.2   MERCK shall pay ONCOTHYREON [+] within thirty (30) days of the date of submission to the applicable regulatory authority in the first MAJOR MARKET of a BLA (or its equivalent in the jurisdiction in question) for BLP25 for such second INDICATION;
 
  6.2.2.2.3   MERCK shall pay ONCOTHYREON [+] within thirty (30) days of the date of receipt of approval of the BLA submitted to the FDA for BLP25 for such second INDICATION;
 
  6.2.2.2.4   MERCK shall pay ONCOTHYREON [+] within thirty (30) days of the date of receipt of approval of the BLA (or its equivalent in the jurisdiction in question) submitted to the applicable regulatory authority in the first MAJOR MARKET for BLP25 for such second INDICATION;
  6.2.2.3   For clarification, each of the milestone payments of MERCK identified in this section 6.2.2 shall be made only once for the stated milestone triggering event. Any milestone payments made by MERCK under section 6.2.2 are non-refundable to MERCK.
  6.2.3   Post LAUNCH Milestone Payments. In consideration for the licenses granted by ONCOTHYREON to MERCK under Article 2 and other benefits afforded MERCK under this AGREEMENT, and in addition to the payment provided for in section 6.1 of this AGREEMENT, the upfront and other payments provided for in section 6.2.1 of this AGREEMENT, the pre LAUNCH milestone payments provided for in section 6.2.2 of this AGREEMENT and the royalty payments provided for in section 6.3 of this AGREEMENT, MERCK shall pay to ONCOTHYREON the following post-LAUNCH milestone payments within forty-five (45) days of the end of the applicable period specified below:
  6.2.3.1   when ROW NET SALES with respect to PRODUCT in any calendar year (following LAUNCH of PRODUCT anywhere in the TERRITORY) equal or exceed [+], a sales milestone payment shall be paid by MERCK to ONCOTHYREON of [+];
 
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  6.2.3.2   when ROW NET SALES with respect to PRODUCT in any calendar year (following LAUNCH of PRODUCT anywhere in the TERRITORY) equal or exceed [+], a sales milestone payment shall be paid by MERCK to ONCOTHYREON of [+];
 
  6.2.3.3   when ROW NET SALES with respect to PRODUCT in any calendar year (following LAUNCH of PRODUCT anywhere in the TERRITORY) equal or exceed [+], a sales milestone payment shall be paid by MERCK to ONCOTHYREON of [+];
 
  6.2.3.4   when ROW NET SALES with respect to PRODUCT in any calendar year (following LAUNCH of PRODUCT anywhere in the TERRITORY) equal or exceed [+], a sales milestone payment shall be paid by MERCK to ONCOTHYREON of [+]; and
 
  6.2.3.5   when ROW NET SALES with respect to PRODUCT in any calendar year (following LAUNCH of PRODUCT anywhere in the TERRITORY) equal or exceed [+], a sales milestone payment shall be paid by MERCK to ONCOTHYREON of [+].
For clarification, each of MERCK’s sales milestone payments identified in this section 6.2.3 shall be made only once for the stated sales milestone triggering event. However, more than one sales milestone may be achieved in a particular calendar year, in which case (if not previously paid) each such sales milestone payments shall be made by MERCK to ONCOTHYREON. Any sales milestone payments made by MERCK under this section 6.2.3 are non-refundable to MERCK.
Section 6.3 Royalty Payments
  6.3.1   In consideration for the licenses granted by ONCOTHYREON to MERCK under Article 2 and other benefits afforded MERCK under this AGREEMENT, and in addition to the payment provided for in section 6.1 of this AGREEMENT, the upfront and other payments provided for in section 6.2.1 of this AGREEMENT, the pre LAUNCH milestones provided for in section 6.2.2 of this AGREEMENT and the post LAUNCH milestones provided for in section 6.2.3 of this AGREEMENT, MERCK shall make the payments specified in this section 6.3 to ONCOTHYREON.
 
  6.3.2   With respect to BLP25 in a particular country in the NA TERRITORY, MERCK shall, until the later of (a) the expiration or termination of the last to expire or terminate of VALID CLAIMS that cover PRODUCT in such country, and (b) the date which is the fifteenth (15 th ) anniversary of the LAUNCH of PRODUCT in any country in the TERRITORY, pay to ONCOTHYREON on a quarterly basis as specified in article 7 of this AGREEMENT a royalty on NET SALES of PRODUCT in such country calculated as follows:
  6.3.2.1   MERCK shall pay ONCOTHYREON a royalty equal to [+] of NET
 
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      SALES in such country in respect of PRODUCT for such portion of annual NET SALES in the NA TERRITORY for the calendar year in question up to and including [+] (pro-rated for stub periods); and
 
  6.3.2.2   MERCK shall pay ONCOTHYREON a royalty equal to [+] of NET SALES in such country in respect of PRODUCT for such portion of annual NET SALES in the NA TERRITORY for the calendar year in question which exceed [+] (pro-rated for stub periods).
The royalty rates specified in sections 6.3.2.1 and 6.3.2.2 above shall be reduced to [+] and [+], respectively, in circumstances where MERCK has paid in full to ONCOTHYREON in the manner specified in section 6.2.1.2 the remaining manufacturing process transfer milestone payment in the amount of [+] on or before December 31, 2009.
  6.3.3   With respect to BLP25 in a particular country in the ROW TERRITORY, MERCK shall, until the later of (a) the expiration or termination of the last to expire or terminate of VALID CLAIMS that cover such PRODUCT in such country, and (b) the date which is the fifteenth (15 th ) anniversary of the LAUNCH of such PRODUCT in any country in the TERRITORY, pay to ONCOTHYREON on a quarterly basis as specified in article 7 of this AGREEMENT a royalty on NET SALES of such PRODUCT in such country calculated as follows:
  6.3.3.1   so long as, with respect to the calendar quarter in question, no COMPETITIVE PRODUCT(S) has actual SALES (based on IMS Global Services data) in such country which are more than [+] of the actual SALES (based on IMS Global Services data) of MERCK, its AFFILIATES and their respective permitted sublicensees, DISTRIBUTORS, assignees and transferees with respect to PRODUCT in such country, then MERCK shall pay ONCOTHYREON a royalty equal to [+] of NET SALES in such country in respect of PRODUCT for such calendar quarter (provided that such [+] royalty rate shall be reduced to [+] in circumstances where MERCK has paid in full to ONCOTHYREON in the manner specified in section 6.2.1.2 the remaining manufacturing process transfer milestone payment in the amount of [+] on or before December 31, 2009);
 
  6.3.3.2   if, with respect to the calendar quarter in question, a COMPETITIVE PRODUCT(S) has actual SALES (based on IMS Global Services data) in such country which are more than [+] but no more than [+] of the actual SALES (based on IMS Global Services data) of MERCK, its AFFILIATES and their respective permitted sublicensees, DISTRIBUTORS, assignees and transferees with respect to PRODUCT in such country, then MERCK shall pay ONCOTHYREON a royalty equal to [+] of NET SALES in such country in respect of PRODUCT for such calendar quarter (provided that such [+] royalty rate shall be
 
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      reduced to [+] in circumstances where MERCK has paid in full to ONCOTHYREON in the manner specified in section 6.2.1.2 the remaining manufacturing process transfer milestone payment in the amount of [+] on or before December 31, 2009);
 
  6.3.3.3   if, with respect to the calendar quarter in question, a COMPETITIVE PRODUCT(S) has actual SALES (based on IMS Global Services data) which are more than [+] of the actual SALES (based on IMS Global Services data) of MERCK, its AFFILIATES and their respective permitted sublicensees, DISTRIBUTORS, assignees and transferees with respect to PRODUCT in such country, then MERCK shall pay ONCOTHYREON a royalty equal to [+] of NET SALES in such country in respect of PRODUCT for such calendar quarter (provided that such [+] royalty rate shall be reduced to [+] in circumstances where MERCK has paid in full to ONCOTHYREON in the manner specified in section 6.2.1.2 the remaining manufacturing process transfer milestone payment in the amount of [+] on or before December 31, 2009).
  6.3.4   If, with respect to PRODUCT in a particular country in the TERRITORY, MERCK is able to demonstrate that, for any reason beyond the control of MERCK and its permitted sublicensees and distributors, the royalty rate payable by MERCK under sections 6.3.2 and 6.3.3 causes or is likely to cause a significant reduction in SALES of PRODUCT in such country, ONCOTHYREON and MERCK shall meet and in good faith review in such circumstances the royalty rate applicable to PRODUCT in such country.
 
  6.3.5   It is recognized that certain third party rights licensed to ONCOTHYREON under the THIRD PARTY LICENSES are included in ONCOTHYREON PATENT RIGHTS as indicated in appendix 3. To the extent such THIRD PARTY LICENSES relate to the TERRITORY, ONCOTHYREON is solely responsible for all payments due to those third parties, provided that MERCK acknowledges and agrees that MERCK shall be responsible for the payment of all royalties and other amounts payable pursuant to the CORIXA LICENSE.
 
  6.3.6   No royalties under this section 6.3 shall be payable on PRODUCT used solely by or on behalf of the parties for tests or development purposes or on transfers between MERCK and its sublicensees who are not END USERS. Unless ONCOTHYREON and MERCK otherwise agree in writing, no samples of any PRODUCT shall be made available by MERCK to END USERS.
 
  6.3.7   In establishing the royalty structure of this section 6.3, ONCOTHYREON and MERCK recognize, and MERCK acknowledges, the substantial value of the various actions and investments undertaken by ONCOTHYREON prior to the EFFECTIVE DATE. Such value is significant and in addition to the value of ONCOTHYREON’s grant to MERCK of the license pursuant to section 2.1 of this AGREEMENT, as it enables the rapid and effective development and
 
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      commercialization of PRODUCT in the TERRITORY. Therefore, ONCOTHYREON and MERCK agree that the royalty payments calculated as a percentage of NET SALES (plus any other payments provided for elsewhere in this AGREEMENT) provide fair compensation to ONCOTHYREON for these additional benefits.
ARTICLE 7
ACCOUNTING RECORDS AND PROCEDURES
— NA TERRITORY AND ROW TERRITORY
Section 7.1 Royalty Payments
MERCK shall make royalty payments due ONCOTHYREON under article 6 of this AGREEMENT on a quarterly basis, within forty-five (45) days following the end of each calendar quarter for which royalties are due. Each royalty payment shall be accompanied by a SALES REPORT.
Section 7.2 SALES REPORTS
Within forty-five (45) days after the end of each calendar quarter following the first sale of PRODUCT in the TERRITORY, MERCK shall provide ONCOTHYREON with a detailed report (a “SALES REPORT”) which will set forth in reasonable detail and with reasonable supporting documentation on a country-by-country basis (for each country in the TERRITORY):
  7.2.1   the number of units of PRODUCT sold during such calendar quarter in such country;
 
  7.2.2   the total billings for PRODUCT during such calendar quarter in such country and in the TERRITORY;
 
  7.2.3   the deductions applicable to the determination of NET SALES with respect to PRODUCT during such calendar quarter in such country;
 
  7.2.4   the NET SALES with respect to PRODUCT during such calendar quarter in such country;
 
  7.2.5   the average sales price of PRODUCT during such calendar quarter in such country;
 
  7.2.6   the total royalties due and the basis of the calculation thereof; and
 
  7.2.7   such other information as ONCOTHYREON may reasonably request.
Section 7.3 Records and Audits
MERCK will keep and maintain (and, to the extent applicable, will cause its AFFILIATES and their respective sublicensees, distributors, assignees and transferees to keep and maintain) proper and complete records and books of account in such form and detail as is necessary for the determination of the amounts payable by MERCK (on behalf of itself and its AFFILIATES and their respective sublicensees, distributors, assignees and transferees) to ONCOTHYREON under this AGREEMENT. MERCK shall at least once in each calendar year during normal business
 
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hours upon thirty (30) days prior written notice from ONCOTHYREON make those records (and, to the extent applicable, those of its AFFILIATES and their respective sublicensees, distributors, assignees and transferees) available for audit by an internationally recognized accounting firm designated by ONCOTHYREON (except one to which MERCK shall have objection, acting reasonably and provided such accounting firm agrees to enter into a confidentiality agreement with the audited party which provides protection for confidential information which is similar to that provided under article 8 of this AGREEMENT) for the sole purpose of, and MERCK will only be required to disclose information related to, verifying such payments, revenues, NET SALES, costs, expenses and deductions and the correctness of calculations and classifications in respect thereof. MERCK shall preserve (and, to the extent applicable, will cause its AFFILIATES and their respective sublicensees, distributors, assignees and transferees to preserve) such records made in any calendar year for a period of seven (7) years following the close of that calendar year. Results of any such examination shall be made available to each of ONCOTHYREON and MERCK, but all backup documentation and data shall be made available only to such accounting firm for use only on the premises of the audited party. In the event that such audit discloses that the actual royalties or other amounts payable by MERCK to ONCOTHYREON are greater than the royalties or other amounts paid by MERCK, then MERCK shall pay to ONCOTHYREON any additional royalties and other amounts based on the results disclosed by such audit. In the event that such audit discloses that the actual royalties or other amounts payable by MERCK to ONCOTHYREON are less than the royalties or other amounts paid by MERCK, then ONCOTHYREON shall reimburse MERCK for any such overpayment based on the results disclosed by such audit. The cost of such audit shall be borne by ONCOTHYREON unless such audit discloses that the actual royalties and other amounts payable by MERCK to ONCOTHYREON are greater by five percent (5%) or more than the royalties and other amounts paid by MERCK, in which case MERCK shall be responsible for payment of all reasonable costs of such audit.
Section 7.4 Payments from Germany
Unless otherwise agreed to in writing by ONCOTHYREON and MERCK, MERCK will make all payments and reimbursements to ONCOTHYREON under this AGREEMENT from Germany.
Section 7.5 Confidentiality of Financial Reports
Except as otherwise required for purposes of or permitted under this AGREEMENT and except to the extent disclosure by ONCOTHYREON is required by law or any applicable regulatory authority, ONCOTHYREON agrees to hold in confidence according to article 8 all information concerning royalty payments and financial reports, and all information learned in the course of any audit. If ONCOTHYREON believes, acting reasonably, disclosure is required by law or any applicable regulatory authority, ONCOTHYREON shall immediately so notify MERCK and shall provide reasonable assistance to MERCK in maintaining MERCK’s rights at MERCK’s expense.
 
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ARTICLE 8
CONFIDENTIALITY
Section 8.1 Definition
CONFIDENTIAL INFORMATION is any and all information of a confidential nature including without limitation DEVELOPMENT PLANS, COMMERCIAL MANUFACTURING PLANS, MARKETING PLANS, any data and/or information generated under this AGREEMENT, any and all data and/or other information of a confidential nature which is proprietary to the disclosing party and not generally known (including without limitation relating to the ONCOTHYREON TECHNOLOGY), and technological information not limited to compound(s), composition(s), formulation(s) and/or, manufacturing information, and including business information not limited to commercial forecasts, sales, plans, programs, customers, assets, financial projections, and costs.
Section 8.2 Obligations
Each party agrees to hold all of the other party’s CONFIDENTIAL INFORMATION received or generated in connection with this AGREEMENT (either prior to, on, or after the EFFECTIVE DATE) in confidence and neither disclose it to any third party nor allow any third party access to it nor use it for any purpose other than as specified by this AGREEMENT. Disclosure by a receiving party of CONFIDENTIAL INFORMATION of the other party shall only be made to such of its directors, officers, employees, agents and consultants whose duties require such disclosure and then only if the persons to whom such CONFIDENTIAL INFORMATION is disclosed are bound by appropriate confidentiality undertakings. The above notwithstanding, each of MERCK and ONCOTHYREON may disclose CONFIDENTIAL INFORMATION of the other party to their respective AFFILIATES or distributors on a “need-to-know” basis provided such persons are bound by like terms of confidentiality as those stated herein.
Section 8.3 Exceptions
These obligations of non-disclosure and non-use shall not apply to CONFIDENTIAL INFORMATION which:
  8.3.1   was, at the time of disclosure, in the possession of the receiving party (as evidenced by its written records) and was not previously acquired from or on behalf of the disclosing party on a confidential basis,
 
  8.3.2   was in the public domain prior to disclosure, or became, after disclosure, publicly known through no fault of the receiving party or any person to whom the receiving party directly or indirectly provided such CONFIDENTIAL INFORMATION,
 
  8.3.3   was received from a third party who rightfully made such disclosure,
 
  8.3.4   was approved for use or release by written authorization from the disclosing party prior to such use or release by the receiving party,
 
  8.3.5   is required to be disclosed by operation of law, governmental regulation or court order provided the receiving party gives the disclosing party written notice of such required disclosure prior to making such disclosure, and the receiving party
 
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      uses all reasonable effort to cooperate in securing confidential protection for such information; or
 
  8.3.6   is required to be disclosed to any governmental authority or regulatory authority to the extent that such disclosure is reasonably necessary to obtain authorizations to conduct a clinical trial with and to market commercially PRODUCTS, provided the disclosing party is otherwise entitled to engage in such activities under this AGREEMENT.
Any specific CONFIDENTIAL INFORMATION shall not be deemed to fall within 8.3.1, 8.3.2, 8.3.3, 8.3.4, 8.3.5 or 8.3.6 above merely because it falls within the scope of more general information within one of these exceptions.
Section 8.4 Term of Confidentiality
These obligations of confidentiality and non-use are binding throughout the duration of this AGREEMENT and shall remain in force for a period of ten (10) years from the date of the expiration or termination of this AGREEMENT.
Section 8.5 Return of Information
Upon termination and upon request from the disclosing party, the receiving party agrees to promptly return all originals and copies of CONFIDENTIAL INFORMATION received, as well as permanently delete all electronically or otherwise stored CONFIDENTIAL INFORMATION from all systems containing such CONFIDENTIAL INFORMATION, except as otherwise required by applicable law and/or regulation and except that one copy may be retained by legal counsel solely as a measure of the receiving party’s obligations under this AGREEMENT.
Section 8.6 Publicity
  8.6.1   Confidentiality. Neither party may disclose any non-public information regarding the nature and/or occurrence of this transaction, or the nature and/or occurrence of any event or information occurring as a result of this transaction without the prior written consent of the other party (such consent not to be unreasonably withheld), except that each of MERCK and ONCOTHYREON may disclose such information to their respective AFFILIATES that are under like terms of confidentiality as those stated herein without such consent and any such information that is required by law or any applicable regulatory authority to be disclosed (to the extent required to be disclosed). Where practicable, prior to any required submission of the terms of this transaction to any governmental agency or authority, the disclosing party shall provide the other party with a copy of such submission including, without limitation, identification of any portions of this AGREEMENT which the disclosing party intends to redact or intends to request the governmental agency or authority to redact, so that the other party may review and comment on any such proposed submission. The disclosing party shall initially redact financial terms (and such other material terms as are appropriate in the circumstances) and will use commercially reasonable efforts to obtain the concurrence of the governmental agency or authority to such redaction of financial and other material terms.
 
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  8.6.2   Press Release. The parties shall agree on a press release to announce the execution of this Agreement, and on a Question and Answer (“Q&A”) outline for use in responding to inquiries about this AGREEMENT. With respect to future press releases or other public statements relating to the subject matter of this AGREEMENT, including, but not limited to, webcast materials, press kits and Q&A’s, except to the extent dealing with subject matter already in the public domain or as required by law or any applicable regulatory authority (and even then to the extent practicable) and except with respect to information already in the public domain or previously approved by the other party, ONCOTHYREON and MERCK shall each provide to the other party a copy of any proposed press release and the other party shall provide any comments with respect thereto within the same period of time (which shall be specified, but shall not be less than twenty-four (24) hours) as the party proposing to issue such press release has permitted for its own internal review. If no comments are received by the issuing party within the permitted review period, the press release in question shall be deemed to have been approved by the other party. If comments are received by the issuing party within the permitted review period, then the issuing party shall seriously and in good faith consider such comments and, to the extent such comments are not incorporated in such press release, only the minimum legally or regulatorily required disclosure shall be made with respect to such matters.
 
  8.6.3   Scientific Publications.
 
      MERCK, and not ONCOTHYREON (except with respect to research which took place on or before the EFFECTIVE DATE), shall have the right to present at symposia, professional meetings, and to publish in academic journals or other similar publications, accounts of its research relating to the ONCOTHYREON TECHNOLOGY, the PRODUCT, ONCOTHYREON IMPROVEMENTS, MERCK IMPROVEMENTS and JOINT IMPROVEMENTS which are the subject of this AGREEMENT, provided that MERCK shall have furnished a copy of the proposed disclosure at least sixty (60) days in advance of the presentation or publication date to ONCOTHYREON. ONCOTHYREON shall use the sixty (60) day period to evaluate the disclosure for patentable content and to, if it so determines, pursue patent protection with respect thereto.
ARTICLE 9
INVENTIONS AND PATENTS
Section 9.1 JOINT IMPROVEMENTS
All IMPROVEMENTS made jointly by employees or others (including, without limitation, AFFILIATES of MERCK) acting on behalf of ONCOTHYREON and MERCK (the “JOINT IMPROVEMENTS”) shall be jointly owned by ONCOTHYREON and MERCK (each party shall have an undivided, one-half interest). JOINT IMPROVEMENTS shall be managed pursuant to section 9.7.
 
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Section 9.2 ONCOTHYREON IMPROVEMENTS
IMPROVEMENTS made solely by employees or others acting on behalf of ONCOTHYREON (the “ONCOTHYREON IMPROVEMENTS”) shall be owned solely by ONCOTHYREON, and, in the circumstances specified in the definition of BLP25, shall be subject to the licenses granted to MERCK in article 2. Notwithstanding any provision to the contrary in this AGREEMENT, ONCOTHYREON shall have the right, but not the obligation, to file, prosecute and maintain patent protection for ONCOTHYREON IMPROVEMENTS to be licensed hereunder and, MERCK shall pay, to the extent Merck was given the opportunity to select the respective countries in which to protect the same, one hundred percent (100%) of the filing, prosecution, maintenance and defense costs associated with such patent applications or patents and the use of the technology represented thereby and one hundred percent (100%) of the development (including clinical development), scale-up and other costs associated therewith throughout the TERRITORY. ONCOTHYREON may at any time, upon written notice to MERCK, elect not to file, or cease prosecuting, defending and/or maintaining any patent and/or patent application forming part of the ONCOTHYREON IMPROVEMENTS and shall, if requested in writing by MERCK within forty-five (45) days of the receipt by MERCK of the aforementioned written notice from ONCOTHYREON, assign such invention, patent and/or patent application, either in total or on a country-by-country basis, to MERCK and MERCK shall bear one hundred percent (100%) of the assignment costs in connection therewith and continue to bear one hundred percent (100%) of the filing, production, maintenance and defence costs.
Section 9.3 MERCK IMPROVEMENTS
IMPROVEMENTS made solely by employees or others (including, without limitation, AFFILIATES of MERCK) acting on behalf (including, without limitation, pursuant to any general services or other similar agreement) of MERCK (the “MERCK IMPROVEMENTS”) shall be owned solely by MERCK. MERCK shall have the right to file, prosecute and maintain at its cost patent protection for MERCK IMPROVEMENTS.
Section 9.4 Determination of Inventorship
Inventorship shall be determined in accordance with U.S. patent law.
Section 9.5 Invention Disclosure
ONCOTHYREON shall promptly disclose to MERCK and MERCK shall promptly disclose to ONCOTHYREON any IMPROVEMENTS arising under this AGREEMENT. Each party agrees to hold such disclosure from the other party on a confidential basis under the same terms regarding confidentiality as described in article 8. Each party agrees to keep the other party informed of the filing and status of any patent application or patent pertaining to this AGREEMENT and shall consider any comments or suggestions from the other party with respect thereto.
Section 9.6 Independent Use of JOINT IMPROVEMENTS
Within the FIELD the use of JOINT IMPROVEMENTS shall only be for purposes of and pursuant to the terms and conditions of this AGREEMENT. Outside of the FIELD the parties shall each be entitled to use JOINT IMPROVEMENTS as such party determines, provided that prior to a party licensing any such JOINT IMPROVEMENT to a third party such party shall consult with the other party with the aim of jointly licensing such JOINT IMPROVEMENT to
 
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such third party. In the absence of a joint license, neither party may license a JOINT IMPROVEMENT to a third party without the prior written consent of the other party.
Section 9.7 Prosecution and Maintenance of Joint Patents
  9.7.1   Filing, Prosecution and Maintenance. ONCOTHYREON and MERCK shall determine, with respect to each JOINT IMPROVEMENT, the procedure and responsibility for filing, prosecuting and maintaining patent applications with respect to such JOINT IMPROVEMENTS. Unless otherwise agreed in writing, all reasonable costs incurred with respect to the filing, prosecution and maintenance of patent applications and patents covering JOINT IMPROVEMENTS, including fees and expenses of patent counsel, shall be borne equally by the parties. Notwithstanding that one party may be delegated responsibility for filing, prosecuting and maintaining patent applications with respect to a particular JOINT IMPROVEMENT, the other party must approve in writing the taking of any material action with respect thereto including without limitation approving any patent application prior to filing. Both ONCOTHYREON and MERCK shall have the right to participate fully in the formation and implementation of patent strategy.
 
  9.7.2   Cooperation. Each party shall reasonably make available to the other party or its authorized attorneys, agents or representatives, its employees, agents or consultants (including, without limitation, AFFILIATES of MERCK) necessary or appropriate to enable the appropriate party to file, prosecute and maintain patent applications and resulting patents with respect to all JOINT IMPROVEMENTS, for a period of time sufficient for such party to obtain the assistance it needs from such personnel. All reasonable costs incurred by either party in providing such cooperation shall be shared equally by the parties.
 
  9.7.3   Failure to Agree. In the case of a failure of ONCOTHYREON and MERCK to agree upon whether or in which countries patent applications should be filed and prosecuted for JOINT IMPROVEMENTS, the party which desires to proceed may file and prosecute the patent applications in its own name and at its own expense, and shall maintain such patents at its own expense. If either ONCOTHYREON or MERCK wishes to discontinue its portion of payment for maintenance of any patent on the JOINT IMPROVEMENTS, such party may do so with prior written notice to the other party, and the other party may maintain such patent on the JOINT IMPROVEMENTS at its own expense. Notwithstanding the foregoing, either party may reacquire its rights in any patents or patent applications in any country relating to the JOINT IMPROVEMENTS by paying its portion of any costs incurred by the other party to such other party.
Section 9.8 No Waiver
By entering into this AGREEMENT, subject to the licenses granted in this AGREEMENT, neither party waives or forfeits any of its rights to any patent that it owns and that exists at the EFFECTIVE DATE, or to any IMPROVEMENT that it owns either jointly or solely.
 
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Section 9.9 Cooperation with Respect to Patents
  9.9.1   The parties acknowledge and agree that it is in their mutual interest to cooperate with respect to the filing, prosecution and maintenance of the ONCOTHYREON PATENT RIGHTS in the FIELD. Therefore, with respect to the ONCOTHYREON PATENT RIGHTS in the FIELD, ONCOTHYREON agrees to keep MERCK informed on a regular basis of its patent strategy, proposed new patent applications and the filing and status of any patent application or patent and to consider in good faith any comments or suggestions of MERCK with respect thereto, subject to MERCK agreeing to appropriate safeguards with respect to the ownership of such proprietary rights. MERCK agrees to hold such disclosure from ONCOTHYREON on a confidential basis under the same terms regarding confidentiality as described in article 8.
 
  9.9.2   Subject to the other provisions of this article 9, ONCOTHYREON covenants and agrees to use reasonable commercial efforts to prosecute and, prior to the expiration or termination thereof, defend and maintain the ONCOTHYREON PATENT RIGHTS in the CORE PATENT COUNTRIES during the term of this AGREEMENT, provided that ONCOTHYREON may at any time, upon written notice to MERCK, cease prosecuting, defending and/or maintaining any patent and/or patent application forming part of the ONCOTHYREON PATENT RIGHTS and shall, if requested in writing by MERCK within forty-five (45) days of the receipt by MERCK of the aforementioned written notice from ONCOTHYREON, assign such patent and/or patent application, either in total or on a country-by-country basis, to MERCK. In the event that MERCK requests to take over any such patent or patent application as aforesaid, MERCK shall be responsible for all costs and expenses incurred in connection with transferring such rights to MERCK and all ongoing costs and expenses in connection with the prosecution, defence and maintenance of such rights (including without limitation any liability and/or amounts payable with respect thereto pursuant to section 10.2). Notwithstanding the foregoing but always subject to the other provisions of this article 9, MERCK shall have the right in circumstances where MERCK has assumed such obligations as aforesaid, at MERCK’S election, to (i) charge to ONCOTHYREON all reasonable costs and expenses incurred by MERCK or its designated AFFILIATE in connection with the prosecution, defence and maintenance of such patent or patent application in such CORE PATENT COUNTRY notwithstanding the assignment thereof to MERCK, or (ii) deduct such reasonable costs and expenses incurred by MERCK or its designated AFFILIATE in connection with the prosecution, defence and maintenance of such patent or patent application in such CORE PATENT COUNTRY from any payment obligations that MERCK has vis-à-vis ONCOTHYREON or its AFFILIATES under this AGREEMENT.
Section 9.10 Merck Manufacturing Activities
Notwithstanding any other provision to the contrary in this AGREEMENT, ONCOTHYREON and MERCK agree that any manufacturing activities pursued or undertaken by or on behalf of MERCK or any of its AFFILIATES or their respective sublicensees, contract manufacturers, and the like, after the EFFECTIVE DATE (the “MERCK MANUFACTURING ACTIVITIES”)
 
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which are at variance with or different from those undertaken by ONCOTHYREON prior to the EFFECTIVE DATE shall be the sole responsibility, and at the risk, of MERCK.
ARTICLE 10
PATENT INFRINGEMENT
Section 10.1 Infringement by Third Parties
  10.1.1   Notification. If any claims in ONCOTHYREON PATENT RIGHTS licensed to MERCK hereunder or in patent rights covering a JOINT IMPROVEMENT (“JOINT IMPROVEMENT PATENT RIGHTS”) are believed to be infringed by a third party in a country where PRODUCT is being or will be sold, the party first having knowledge of such infringement shall promptly so notify the other party in writing. Such notice shall set forth in reasonable detail the facts of that infringement as are then known.
 
  10.1.2   Initiating Proceedings. ONCOTHYREON shall have the primary right, but not the obligation, to initiate, prosecute, and control any action or proceeding with respect to such infringement. If ONCOTHYREON fails to initiate proceedings intended to remedy such infringement within ninety (90) days of receiving written notice of such infringement, then MERCK may bring and control any such action. If one party initiates proceedings intended to remedy such infringement, then the other party shall be kept fully informed with respect to such proceedings and shall be consulted in relation to all material discussions concerning such proceedings. Further, the other party agrees to cooperate and give reasonable assistance, including agreeing to be joined as a party plaintiff if suit is filed. The party which brings and controls proceedings against an alleged infringer will do so at its own expense. If the other party chooses to be represented by counsel of its own choice in any such proceeding, then that party may be so represented, but at its own expense.
 
  10.1.3   Distribution of Awards. Any monetary award received as a result of proceedings contemplated by this section 10.1 shall first be used to compensate ONCOTHYREON and MERCK for their respective reasonable expenses incurred in connection with such proceedings (provided that if the monetary award is not sufficient to compensate both ONCOTHYREON and MERCK for their reasonable expenses incurred in connection with such proceedings, then such monetary award shall be apportioned pro rata based on the reasonable expenses of each of the parties). Any award monies remaining after such reimbursement shall (to the extent such award monies represent compensation for lost SALES of PRODUCT) be added to NET SALES for the calendar quarter in which they are received and then dealt with in the manner prescribed in this AGREEMENT for such NET SALES. Any remaining award monies which do not represent compensation for lost sales of PRODUCT shall be shared equally by the parties.
 
  10.1.4   Voluntary Disposition. No settlement or consent judgment or other voluntary final disposition of a suit under this section 10.1 may be entered into by either
 
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party without the prior consent of the other party, such consent not to be unreasonably withheld.
Section 10.2 Claims Against ONCOTHYREON TECHNOLOGY and JOINT TECHNOLOGY
  10.2.1   Notice.
  10.2.1.1   If a third party asserts that a patent or other right owned by it is infringed by ONCOTHYREON’s and/or MERCK’s use or sale in the manner prescribed in this AGREEMENT of any ONCOTHYREON PATENT RIGHTS, the party first obtaining knowledge of such claim shall immediately provide the other party with written notice of such claim and the related facts as are then known, in reasonable detail. ONCOTHYREON shall have the primary right, but not the obligation to, control the defense and settlement of any such claim at its expense. If ONCOTHYREON fails to assume the control and settlement of any such claim within ninety (90) days of receiving written notice thereof, then MERCK may control the defense and settlement of such action. The controlling party shall keep the non-controlling party fully informed with respect to all matters in relation to such claim and shall consult with the non-consulting party in relation to all material discussions concerning such claim and the defense thereof. The non-controlling party agrees to cooperate and provide reasonable assistance in defending such claims. No settlement shall be entered into without the prior written consent of ONCOTHYREON and MERCK, such consent not to be unreasonably withheld.
 
  10.2.1.2   If a third party asserts that a patent or other right owned by it is infringed by the use, in the manner prescribed in this AGREEMENT, of any JOINT IMPROVEMENTS, the party first obtaining knowledge of such claim shall immediately provide the other party with written notice of such claim and the related facts as are then known, in reasonable detail. Both parties shall share in the control of the defense and settlement of any such claim. Each party shall keep the other party fully informed with respect to all matters in relation to such claim and shall consult with the other party in relation to all material discussions concerning such claim and the defense thereof. The parties agree to cooperate and provide reasonable assistance to the other in defending such claims. No settlement shall be entered into without the prior written consent of ONCOTHYREON and MERCK, such consent not to be unreasonably withheld.
  10.2.2   Damages.
  10.2.2.1   Subject to section 10.2.3, after complying fully with the procedures set forth in section 10.2.1.1, any damages or other payments that result from a claim of infringement as specified in section 10.2.1.1 that are
 
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      required to be paid as a result of reaching a settlement with a third party in the manner prescribed in section 10.2.1.1 or as a result of a judgment from a competent court (which is unappealable or with respect to which the appeal period has expired), shall be:
  10.2.2.1.1   shared equally by ONCOTHYREON and MERCK to the extent such infringement relates to the NA TERRITORY or to the ROW TERRITORY with respect to JOINT IMPROVEMENTS;
 
  10.2.2.1.2   paid by ONCOTHYREON to the extent such infringement relates to the NA TERRITORY or the ROW TERRITORY with respect to ONCOTHYREON PATENT RIGHTS other than IMPROVEMENTS, JOINT IMPROVEMENTS or as a result of MERCK MANUFACTURING ACTIVITIES; and
 
  10.2.2.1.3   paid by MERCK to the extent such infringement relates to IMPROVEMENTS, MERCK MANUFACTURING ACTIVITIES or to the extent contemplated in section 10.2.4.
      Finally, the reasonable costs and expenses of the parties in defending and settling any such action shall be borne by the responsible party(ies) as set forth above.
 
  10.2.2.2   After complying fully with the procedures set forth in section 10.2.1.2, any damages or other payments that result from a claim of infringement as specified in section 10.2.1.2 that are required to be paid as a result of reaching a settlement with a third party in the manner prescribed in section 10.2.1.2 or as a result of a judgment from a competent court (which is unappealable or with respect to which the appeal period has expired), shall be shared equally by ONCOTHYREON and MERCK. Finally, the reasonable costs and expenses of the parties in defending and settling any such action shall be shared equally by ONCOTHYREON and MERCK.
  10.2.3   Royalty Payable to Third Party.
 
      In the event that MERCK, after permitting ONCOTHYREON to defend against any such allegation of infringement in the manner provided for in this article 10, is obligated to pay a royalty to a third party (for which ONCOTHYREON is liable pursuant to section 10.2.2.1) because the use and sale in the manner specified in this AGREEMENT of PRODUCT in a country in the ROW TERRITORY or the NA TERRITORY infringes one or more patents held by a third party claiming subject matter that is also claimed in the ONCOTHYREON PATENT RIGHTS (but excluding ONCOTHYREON IMPROVEMENTS, MERCK
 
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      IMPROVEMENTS, JOINT IMPROVEMENTS and MERCK MANUFACTURING ACTIVITIES), then MERCK may reduce the royalties otherwise payable to ONCOTHYREON under section 6.3 of this AGREEMENT for PRODUCT in the applicable country by fifty percent (50%) of the amount of all such royalties, license fee and other license payments properly paid by MERCK to such third party, provided that in no circumstances shall the royalties otherwise payable under this AGREEMENT by MERCK to ONCOTHYREON for PRODUCT in such country be reduced to less than sixty percent (60%) of the amount otherwise payable.
 
  10.2.4   Subject to Section 9.9.2.
 
      The provisions of this section 10.2 do not apply to any ONCOTHYREON PATENT RIGHTS taken over by MERCK under section 9.9.2 to the extent that MERCK’s (or those of its AFFILIATES and their respective sublicensees, DISTRIBUTORS, contract manufacturers, assignees and/or transferees) acts or omissions have contributed to the infringement in question or claim thereof, and in all such cases and to the extent that MERCK’s (or those of its AFFILIATES and their respective sublicensees, DISTRIBUTORS, contract manufacturers, assignees and/or transferees) acts or omissions have contributed to the infringement in question or claim thereof, MERCK shall be solely responsible for all payments, costs and expenses in connection therewith.
ARTICLE 11
TERM AND TERMINATION
Section 11.1 Term and Expiration
This AGREEMENT shall be effective as of the EFFECTIVE DATE and, unless terminated earlier pursuant to this article 11, this AGREEMENT shall remain in force and effect on a country-by-country basis until the later of (a) the expiration or termination of the last to expire or terminate of VALID CLAIMS that cover PRODUCT in such country, and (b) the date which is the fifteenth (15 th ) anniversary of the LAUNCH of PRODUCT in any country in the TERRITORY.
Section 11.2 Early Termination
This AGREEMENT may be terminated as follows:
  11.2.1   by mutual written agreement of ONCOTHYREON and MERCK, effective as of the time specified in such written agreement; or
 
  11.2.2   by either party, upon any breach of this AGREEMENT by the other party of any obligation to make payments required hereunder, which failure to make payment is not the subject of a legitimate, good faith dispute between the parties, provided, however , that the party alleging such breach must first give the other party written notice thereof, which notice must identify the breach in reasonable detail and that the party giving such notice views such alleged breach as a basis for terminating this AGREEMENT under this section 11.2.2 and the party receiving such notice
 
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      must have failed to cure such alleged breach within forty-five (45) days after receipt of such notice; or
 
  11.2.3   by either party, upon any material breach of this AGREEMENT by the other party, provided, however, that the party alleging such material breach must first give the other party written notice thereof, which notice must identify the breach in reasonable detail and that the party giving such notice views such alleged material breach as a basis for terminating this AGREEMENT under this section 11.2.3 and the party receiving such notice must have failed to cure such alleged material breach within ninety (90) days after receipt of such notice or, such longer period of time as the party alleging such material breach may agree to in writing as a result of the good faith efforts of the other party to resolve such material breach in a timely manner; or
 
  11.2.4   by either party, in the event that the other party institutes any proceedings under any statute or otherwise relating to insolvency or bankruptcy, or should any proceedings under any such statute or otherwise be instituted against such party and not be dismissed or vacated within ninety (90) days of the date of commencement of such proceedings;
 
  11.2.5   by MERCK upon thirty (30) days prior written notice to ONCOTHYREON if, in the exercise of MERCK’s reasonable judgment, MERCK determines that there are issues concerning the safety or efficacy of PRODUCT which materially adversely affects PRODUCT’s medical, economic or competitive viability, provided that if ONCOTHYREON does not agree with such determination and notifies MERCK to that effect within ten (10) days following receipt by ONCOTHYREON of MERCK’s written notice of termination, the matter shall be submitted to binding arbitration before an expert or expert panel in the field of clinical drug development, such expert or expert panel to be appointed by ONCOTHYREON and MERCK in accordance with the procedure under section 14.7 of this AGREEMENT.
Section 11.3 Continuing Liability
Termination of this AGREEMENT for any reason shall not release any party from any liability, obligation or agreement which has already accrued nor affect the survival of any provision hereof which is expressly stated to survive such termination. Termination of this AGREEMENT for any reason shall not constitute a waiver or release of, or otherwise be deemed to prejudice or adversely affect, any rights, remedies or claims, whether for damages or otherwise, which a party may have hereunder or which may arise out of or in connection with such termination.
Section 11.4 Disposition of Inventory
MERCK may dispose of its inventory of PRODUCT on hand as of the effective date of termination, and may fill any orders for PRODUCT accepted prior to the effective date of termination, for a period of twelve (12) months after the effective date of termination, and, within thirty (30) days after disposition of such inventory and fulfilment of such orders (and in any event within fourteen (14) months after termination) MERCK will forward to
 
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ONCOTHYREON a final report and pay all royalties or other amounts due for NET SALES in such period.
Section 11.5 Rights and Cooperation on Termination
Upon the termination of this AGREEMENT in its entirety, or with respect to a particular country, the parties shall cooperate so as to minimize the impact of such termination on both parties. ONCOTHYREON and its AFFILIATES shall have the right to use any and all proprietary information and data relating to the manufacture of PRODUCT and any and all preclinical and clinical trial results and related data relating to PRODUCT that are developed by or on behalf of ONCOTHYREON and/or MERCK (including, without limitation, MERCK’s AFFILIATES) after the ORIGINAL EFFECTIVE DATE pursuant to this AGREEMENT (including without limitation all such results and data used or developed by MERCK (including, without limitation, MERCK’s AFFILIATES) in support of applications for MARKET APPROVAL), all MARKET APPROVALS shall be assigned to ONCOTHYREON or its designated AFFILIATE by MERCK (of its applicable AFFILIATE) as soon as is reasonably practicable, and all third party manufacturing agreements and related rights used to manufacture PRODUCT shall be assigned to ONCOTHYREON or its designated AFFILIATE by MERCK (or its applicable AFFILIATE) as soon as is reasonably practicable. For ONCOTHYREON requested proprietary information and data relating to the manufacture of PRODUCT only (whether patent protected or not), ONCOTHYREON shall pay to MERCK such reasonable compensation as is agreed to in writing by ONCOTHYREON and MERCK, acting reasonably, in good faith and in a timely manner, and, if not agreed to by MERCK and ONCOTHYREON within forty-five (45) days of the date of termination of this AGREEMENT, such compensation shall be determined pursuant to section 14.7 of this AGREEMENT. To the extent required in connection with the foregoing, MERCK hereby grants to ONCOTHYREON and its AFFILIATES an irrevocable, non-exclusive, royalty-free (subject to the compensation to be paid by ONCOTHYREON to MERCK described above) license to use such proprietary technology, information and data relating to the manufacture of PRODUCT and such preclinical and clinical trial results and data in the TERRITORY. Finally, for a period not to exceed [+] from termination, MERCK shall supply sufficient PRODUCT to ONCOTHYREON or its designated AFFILIATE to meet such requirements at a cost equal to [+] of the MERCK COST OF GOODS incurred by or on behalf of MERCK in connection with the manufacture of such PRODUCT and otherwise reasonably assist ONCOTHYREON and/or its designated AFFILIATE, at ONCOTHYREON’s expense, to manufacture or have manufactured PRODUCT.
Section 11.6 Rights and Cooperation on Expiration
Upon expiration of this AGREEMENT with respect to a particular country as provided for in section 11.1 of this AGREEMENT, or if any of the licenses granted by ONCOTHYREON to MERCK in this AGREEMENT with respect to PRODUCT in such country become non-exclusive, MERCK shall (i) permit ONCOTHYREON or its designated AFFILIATE to utilize all MARKET APPROVALS owned by MERCK and/or its AFFILIATES with respect to PRODUCT in such country (ii) permit ONCOTHYREON or its designated AFFILIATE to use any and all proprietary information and data relating to the manufacture of PRODUCT and any and all preclinical and clinical trial results and related data relating to PRODUCT developed by or on behalf of MERCK and its AFFILIATES, (iii) supply, for a period of not to exceed [+] from such expiration, sufficient PRODUCT to ONCOTHYREON or its designated AFFILIATE to meet their requirements at a cost equal to [+] of the MERCK COST OF GOODS incurred by or
 
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on behalf of MERCK in connection with the manufacture of such PRODUCT and otherwise reasonably assist ONCOTHYREON and/or its designated AFFILIATE, at ONCOTHYREON’s expense, to manufacture or have manufactured PRODUCT, and (iv) take all other actions reasonably necessary to permit ONCOTHYREON or its designated AFFILIATE to commence the manufacture, marketing and SALE of PRODUCT in such country. Such actions may include, but shall not be limited to, the filing of duplicate MARKET APPROVALS upon ONCOTHYREON’s request and at its sole expense, and granting ONCOTHYREON permission to cross-reference, copy and duplicate the MARKET APPROVALS. For ONCOTHYREON requested proprietary information and data relating to the manufacture of PRODUCT only (whether patent protected or not), ONCOTHYREON shall pay to MERCK such reasonable compensation as is agreed to in writing by ONCOTHYREON and MERCK, acting reasonably, in good faith and in a timely manner, and, if not agreed to by MERCK and ONCOTHYREON within forty-five (45) days of the date of termination of this AGREEMENT, such compensation shall be determined pursuant to section 14.7 of this AGREEMENT. To the extent required in connection with the foregoing, MERCK hereby grants to ONCOTHYREON and its AFFILIATES an irrevocable, non-exclusive, royalty-free (subject to the compensation to be paid by ONCOTHYREON to MERCK described above) license to use such proprietary technology, information and data relating to the manufacture of PRODUCT and such preclinical and clinical trial results and data in the TERRITORY.
ARTICLE 12
REPRESENTATIONS AND WARRANTIES
Section 12.1 Corporate Existence and Power
Each party represents and warrants to the other party that, as of the EFFECTIVE DATE, (a) it is a corporation duly organized and validly existing and in good standing, under the laws of the jurisdiction of its incorporation; (b) it has the corporate power and authority and the legal right to own its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted; and (c) it is in compliance with all requirements of applicable law, except to the extent that any non-compliance would not have a material adverse effect on the properties, business, financial or other condition of such party and would not materially adversely affect such party’s ability to perform its obligations under this AGREEMENT.
Section 12.2 Authorization and Enforcement of Obligations
Each party represents and warrants to the other party that, as of the EFFECTIVE DATE, it has the corporate power and authority and legal right to enter into this AGREEMENT and to perform its obligations hereunder; and that this AGREEMENT has been duly executed and delivered on behalf of each party and, except as it may be limited by applicable law, constitutes a legal, valid, binding obligation, according to its terms.
Section 12.3 Consents
Subject to section 2.3 of this AGREEMENT, each party represents and warrants to the other party that, as of the EFFECTIVE DATE, all necessary consents, approvals and authorizations of all governmental authorities and others required to be obtained by such party in connection with this AGREEMENT have been obtained.
 
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Section 12.4 No Conflict
Subject to section 2.3 of this AGREEMENT, each party represents and warrants to the other party that, as of the EFFECTIVE DATE, the execution and delivery of this AGREEMENT and the performance of such party’s obligations hereunder do not conflict with or violate any requirement of applicable laws or regulations, and do not conflict with, or constitute a default under any contractual obligation of such party.
Section 12.5 Authorization of Obligations
The execution, delivery and performance by each party of this AGREEMENT have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of its stockholders or, subject to section 2.3 of this AGREEMENT, any other third party that has not been received by the EFFECTIVE DATE, (b) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect that have applicability to it or any provision of its charter documents or (c) result in a breach of or constitute a default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected.
Section 12.6 ONCOTHYREON Representations
  12.6.1   ONCOTHYREON represents and warrants to MERCK that as of the EFFECTIVE DATE (but subject to section 2.3 and the need to obtain the consents of the licensees under the THIRD PARTY LICENSES):
  12.6.1.1   to ONCOTHYREON’s knowledge after due inquiry, ONCOTHYREON is the sole owner of, or the exclusive licensee or sublicensee (on the terms described in the applicable licensee agreement) in the NA TERRITORY and the ROW TERRITORY of the ONCOTHYREON PATENT RIGHTS and the ONCOTHYREON KNOW-HOW in existence as at the EFFECTIVE DATE, with the right to grant to MERCK the rights granted in this AGREEMENT, free and clear (except to the extent specified in the THIRD PARTY LICENSES) of any liens or encumbrances which would prevent or impair the grant of such rights;
 
  12.6.1.2   ONCOTHYREON has not assigned or conveyed any interest in the ONCOTHYREON PATENT RIGHTS or the ONCOTHYREON KNOW-HOW in existence as at the EFFECTIVE DATE and licensed to MERCK under this AGREEMENT, or entered into any agreement or made any commitment which is inconsistent with or in derogation of the rights granted to MERCK hereunder;
 
  12.6.1.3   as at the EFFECTIVE DATE, ONCOTHYREON has not received from any third party any written notice to the effect that the ONCOTHYREON PATENTS or the ONCOTHYREON KNOW-HOW infringe the proprietary rights of any such third party;
 
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39

  12.6.1.4   there is no action, suit, proceeding, alternative dispute resolution, mediation or investigation pending or, to the knowledge of ONCOTHYREON, threatened against ONCOTHYREON relating to the ONCOTHYREON PATENT RIGHTS or the ONCOTHYREON KNOW-HOW;
 
  12.6.1.5   to ONCOTHYREON’s knowledge after due inquiry, no third party rights are required in order to enable MERCK to enjoy, as currently enjoyed by MERCK as at the EFFECTIVE DATE, the licenses granted by ONCOTHYREON to MERCK under this AGREEMENT; and
 
  12.6.1.6   to ONCOTHYREON’s knowledge after due inquiry, the ICRT LICENSE and the DANA-FARBER LICENSE are in full force and effect and ONCOTHYREON has no knowledge of any breach or action by ONCOTHYREON which might give rise to a breach under such licenses.
Section 12.7 No Further Representations or Warranties
Except as expressly provided in this article 12 or any other provision of this AGREEMENT, or in the Asset Purchase Agreement, neither party makes any representation or warranty of any kind to the other party, express or implied.
Section 12.8 Survival of Representations and Warranties
The representations and warranties contained in this AGREEMENT shall survive the EFFECTIVE DATE, as applicable, for a period of one (1) year.
ARTICLE 13
INDEMNIFICATION
Section 13.1 Indemnification by ONCOTHYREON
Subject to the terms and conditions of this AGREEMENT, ONCOTHYREON shall indemnify and hold MERCK (and any affiliated corporation and their respective officers, directors, shareholders, employees and agents) (collectively, the “MERCK INDEMNITEES”), free and harmless from any and all claims, demands, liabilities, losses, actions or causes of actions, and any and all expenses associated therewith (including, without limiting the generality of the foregoing, reasonable defense costs and attorney’s fees), arising out of or in connection with, or that are the result of, or are otherwise related to: (i) actions and proceedings brought by any regulatory or other authority against any of the MERCK INDEMNITEES concerning PRODUCT, for or on account of the alleged unapproved or unauthorized introduction by ONCOTHYREON, its AFFILIATES or their respective agents of PRODUCT in interstate or intrastate commerce anywhere in the world; (ii) any claim, complaint, suit, proceeding or cause of action against any of the MERCK INDEMNITEES alleging physical injury, including death as a result of the acts or omissions of ONCOTHYREON, its AFFILIATES or their respective employees and agents, except to the extent attributable to any one or more of the MERCK INDEMNITEES; (iii) ONCOTHYREON’s, its AFFILIATES’ or their respective agents’ non-compliance with any applicable laws or regulations, except to the extent attributable to any one or more of the MERCK INDEMNITEES; (iv) any failure of ONCOTHYREON to perform, in
 
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40

whole or in part, any of its obligations hereunder, except to the extent attributable to any one or more of the MERCK INDEMNITEES; (v) for the period specified in section 12.8, any breach by ONCOTHYREON of any of its representations or warranties under this AGREEMENT; or (vi) any breach by ONCOTHYREON or its AFFILIATES of the THIRD PARTY LICENSES which materially adversely affects MERCK’s rights under this AGREEMENT, except to the extent attributable to any one or more of the MERCK INDEMNITEES.
Section 13.2 Indemnification by MERCK
Subject to the terms and conditions of this AGREEMENT, MERCK shall indemnify and hold ONCOTHYREON (and any affiliated corporation and their respective officers, directors, shareholders, employees and agents) (the “ONCOTHYREON INDEMNITEES”), free and harmless from any and all claims, demands, liabilities, losses, actions or causes of actions, and any and all expenses associated therewith (including, without limiting the generality of the foregoing, reasonable defense costs and attorney’s fees), arising out of or in connection with, or that are the result of, or are otherwise related to: (i) actions and proceedings brought by any regulatory authority against any of the ONCOTHYREON INDEMNITEES concerning PRODUCT, for or on account of the alleged unapproved or unauthorized introduction by MERCK, its AFFILIATES or their respective distributors, sublicensees and agents of PRODUCT in interstate or intrastate commerce anywhere in the world; (ii) any claim, complaint, suit, proceeding or cause of action against any of the ONCOTHYREON INDEMNITEES alleging physical injury, including death as a result of the acts or omissions of MERCK, its AFFILIATES or their respective employees, distributors, sublicensees and agents, except to the extent attributable to any one or more of the ONCOTHYREON INDEMNITEES; (iii) MERCK’s, its AFFILIATES’ or their respective distributors’, sublicensee’s or agents’ non-compliance with any applicable laws or regulations, except to the extent attributable to any one or more of the ONCOTHYREON INDEMNITEES; (iv) any failure of MERCK to perform, in whole or in part, any of its obligations hereunder, except to the extent attributable to any one or more of the ONCOTHYREON INDEMNITEES; (v) MERCK’s, its AFFILIATES’ or their respective distributors’, sublicensees’, contract manufacturers’ or agents’ manufacture, marketing and/or SALE of PRODUCT, except to the extent attributable to any one or more of the ONCOTHYREON INDEMNITEES; or (vi) for the period specified in section 12.8, any breach by MERCK of any of its representations or warranties under this AGREEMENT.
Section 13.3 Procedure
The indemnified party shall give prompt written notice to the indemnifying party(ies) of any suits, claims or demands by third parties or the indemnified party which may give rise to any loss for which indemnification may be required under this article 13; provided, however , that failure to give such notice shall not impair the obligation of the indemnifying party to provide indemnification hereunder except if and to the extent that such failure materially impairs the ability of the indemnifying party to defend the applicable suit, claim or demand. The indemnifying party shall be entitled to assume the defense and control of any suit, claim or demand of any third party at its own cost and expense; provided, however , that the other party shall have the right to be represented by its own counsel at its own cost in such matters. In the event that the indemnifying party shall decline to assume control of any such suit, claim or demand, the party entitled to indemnification shall be entitled to assume such control, conduct the defense of, and settle such suit, claim or action, all at the sole cost and expense of the indemnifying party. Neither the indemnifying party nor the indemnified party shall settle or
 
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41

dispose of any such matter in any manner which would adversely impact the rights or interests of the other party without the prior written consent of the indemnified party, which shall not be unreasonably withheld. Each party shall cooperate with the other party and its counsel in the course of the defense of any such suit, claim or demand, such cooperation to include using reasonable efforts to provide or make available documents, information and witnesses.
ARTICLE 14
MISCELLANEOUS
Section 14.1 Force Majeure
Any delay in the performance of any of the obligations of either party (except for the payment of money) shall not be considered a breach of this AGREEMENT and the time required for performance shall be extended for a period equal to the period of such delay, provided that such delay has been caused by or is the result of (including without limitation in relation to third party contractors and suppliers) any act of God, acts of the public enemy; insurrections; riots; embargoes; labour disputes such as strikes, lockouts or boycotts; fires; explosions; floods; earthquakes; mudslides; or other unforeseeable causes beyond the control of the party so affected. The party so affected shall give prompt notice to the other party of such cause, and shall take whatever reasonable steps are necessary to relieve the effect of such cause as rapidly as reasonable.
Section 14.2 Independent Contractor
Execution of each party’s responsibilities under this AGREEMENT is solely under the direction and control of each respective party as an independent contractor, and not as an employee or agent of the other party.
Section 14.3 Survival
Such provisions of this AGREEMENT that, by their nature, would be expected to survive termination of this AGREEMENT, including without limitation sections 7.3, 7.5, 11.3, 11.4, 11.5, 11.6, 14.6, 14.9 and 14.14 and articles 8 and 13 shall survive any such termination.
Section 14.4 Notice
Whenever any notice is to be given hereunder, it shall be in writing and shall be deemed received on the day delivered, if delivered by courier on a business day, or if sent by first-class certified or registered mail, postage prepaid, to the following addresses:
ONCOTHYREON:
Biomira Management, Inc.
2601 Fourth Avenue, Suite 500
Seattle WA 98121
United States of America
Attention: President
Facsimile: (206) 801-2101
 
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With a copy to:
Oncothyreon Inc.
2601 Fourth Avenue, Suite 500
Seattle WA 98121
United States of America
Attention: President
Facsimile: (206) 801-2101
MERCK:
Merck KGaA
Frankfurter Strasse 250
D-64293 Darmstadt
Germany
Attention: Merck Serono Legal Department
Facsimile: +49-6151-72-2373
With a copy to
Merck Serono S.A Geneva
9 Chemin des Mines, 1202 Geneva
Switzerland
Facimile: +41224143660
Section 14.5 Waivers
No waiver of any term, provision, or condition of this AGREEMENT, whether by conduct or otherwise, in any one or more instances, shall be deemed to be construed as a further or continuing waiver of any such term, provision, or condition of this AGREEMENT unless reduced to writing signed by an authorized representative of each party.
Section 14.6 Applicable Law
This agreement shall be construed under the substantive laws of England, without reference to its conflicts of laws provisions.
Section 14.7 Dispute Resolution
Should any dispute arise between the parties concerning this AGREEMENT, the parties agree to first attempt to resolve the dispute in good faith. If within fifteen (15) days of one party providing written notice of such dispute to the other party such dispute is not resolved, then the parties agree to continue to attempt to resolve the dispute in good faith through meetings between a member of MERCK’s Executive Management Board and the President of ONCOTHYREON before resorting to any other forum for a remedy. If resolution of the dispute is not reached between the Presidents within twenty (20) days of either party submitting such dispute in writing to the Presidents, then the parties shall within the next following fifteen (15) day period initiate binding arbitration in London, England under the rules of the International Chamber of Commerce. The party desiring arbitration shall nominate one (1) arbitrator and shall
 
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43

notify the other party in writing of such nomination. Such other party shall, within ten (10) days after receiving such notice, nominate an arbitrator and the two (2) arbitrators shall select a third arbitrator of the arbitration tribunal to act jointly with them. The parties will act reasonably and in good faith to select arbitrators who are objective and who are suitably qualified by education or professional experience to deal with the matters which are the subject of the arbitration.
Section 14.8 Assignment
The parties agree that this AGREEMENT is personal in nature and, except for transfer by ONCOTHYREON to any of its AFFILIATES, this AGREEMENT may not be assigned or otherwise transferred, nor may any right or obligations hereunder be assigned or transferred directly or indirectly by either party, whether voluntary, by operation of law or otherwise, without the written consent of the other party, such consent not to be unreasonably withheld. In connection with ONCOTHYREON determining whether to consent to an assignment, the parties agree that ONCOTHYREON shall be deemed to be acting reasonably if it withholds its consent in circumstances where the proposed assignee is not a corporation of equal or greater financial resources, marketing strength and expertise (including in the cancer area), and stature in the pharmaceutical industry as MERCK. Any purported assignment in violation of this section 14.8 shall be void. Notwithstanding the foregoing, either party may, without such consent, assign or novate this AGREEMENT and its rights and obligations hereunder in connection with the transfer or sale of all or substantially all of its business, through merger, consolidation or change in control or similar transaction after first giving the other party written notice of such event. Pursuant to any such assignment, any permitted assignee shall assume all rights of the assignor under this AGREEMENT, and pursuant to any such novation, any permitted novatee shall assume all rights and obligations of the novator under this AGREEMENT.
Section 14.9 Currency
All payments to be made under this AGREEMENT shall be made in United States dollars. The currency in which NET SALES were invoiced shall be converted to United States dollars on the date of payment of the royalty due using the applicable commercial rate of exchange for buying US dollars with the currency that is the average of the closing buying rates for such currency for the quarter for which such payments are due, quoted as local currency per US $1, as established and published by the European Central Bank.
Section 14.10 Payment of taxes
Each of ONCOTHYREON and MERCK shall be responsible for any and all taxes and other similar levies or charges properly assessed against payments received by such party from the other party under this AGREEMENT. If applicable laws or regulations require that taxes be withheld on such payments, the withholding party will in a timely manner notify the other party in writing specifying the details thereof and shall:
  14.10.1   deduct those taxes from the amount of such payment due to the receiving party,
 
  14.10.2   pay the taxes to the proper taxing authority in a timely manner, and
 
  14.10.3   send proof of payment to the receiving party within sixty (60) days following that payment.
 
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The parties agree to cooperate to reduce the amount of any such deductions and to obtain the benefit of any tax treaty with respect to such deductions. Further, the withholding party shall cooperate with the receiving party in obtaining for the receiving party a credit or refund for any such taxes, levies or charges. Neither party shall be required under this concluding paragraph of section 14.10 to act in a manner which is financially detrimental from a taxation perspective to such party.
Section 14.11 Interest
Any late payments of any nature under this AGREEMENT shall bear interest, running from the date such payment was due until such payment is made in full, at a rate per annum equal to the average three (3) month US dollar LIBOR rate (as published from time to time by Reuters) plus one percent (1%).
Section 14.12 Sublicensees
In addition to the requirements of sections 2.1 and 2.3 of this AGREEMENT, in the event MERCK utilizes any AFFILIATE or third party to distribute PRODUCT (directly or indirectly) for MERCK in the TERRITORY or otherwise sublicenses any of the licensed rights under this AGREEMENT, the agreement with such AFFILIATE or third party shall include an obligation for such third party to comply with the provisions of this AGREEMENT on the same basis as if such SALES were made by MERCK, and MERCK shall for all purposes under this AGREEMENT treat the net sales of PRODUCT of the sublicensee as NET SALES of MERCK.
Section 14.13 Limitation
Notwithstanding any other provision to the contrary in this AGREEMENT, other than with respect to applicable third party product liability and patent infringement claims, the maximum aggregate liability of ONCOTHYREON under this AGREEMENT shall not exceed the amounts paid by MERCK to ONCOTHYREON up to the time in question under this AGREEMENT (including, for greater certainty, payments by MERCK under this AGREEMENT with respect to shared costs, equity purchases and milestones) and any preceding agreement between the parties relating to the PRODUCT. Neither party shall have any liability to the other party or any other person pursuant to this AGREEMENT for any special, indirect or consequential damages, including but not limited to loss of profits, loss of business opportunities or loss of business investment.
Section 14.14 Severability
If any provision of this AGREEMENT is held to be illegal or unenforceable, that provision shall be limited to the minimum extent necessary or, if necessary, eliminated, so that this AGREEMENT shall otherwise remain enforceable and in full force and effect
Section 14.15 Integration Clause
Except for the ASSET PURCHASE AGREEMENT, this AGREEMENT is the sole agreement with respect to the subject matter hereof, and supersedes all proposals, negotiations, conversations, discussions, agreements (including the 2006 COLLABORATION AGREEMENT and the 2006 SUPPLY AGREEMENT) and/or representations, whether oral or written, including any industry custom or past dealing between the parties relating to the subject matter of this AGREEMENT. The parties agree that any and all obligations between the parties that are outside the terms of this AGREEMENT and that relate to the subject matter of this
 
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AGREEMENT that preceded the EFFECTIVE DATE of this AGREEMENT have been satisfactorily executed or are null and void.
Section 14.16 U.S. Dollars
Unless otherwise provided, any reference in this AGREEMENT to dollars shall be to U.S. dollars.
Section 14.17 Amendment of Agreement
No change, modification, extension, termination, waiver or other amendment of this AGREEMENT or any of the provisions contained herein, shall be valid unless made in writing and signed by a duly authorized representative of each party.
Section 14.18 Third Parties
A person who is not a party to this AGREEMENT has no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this AGREEMENT.
Section 14.19 No Further Representations or Warranties
Each party acknowledges that it has not relied on or been induced to enter this AGREEMENT by a representation or warranty other than those expressly set out in this AGREEMENT. A party is not liable to the other party for a representation or warranty that is not set out in this AGREEMENT, including any warranty implied by statute.
Section 14.20 Non-Solicitation
During the term of this AGREEMENT, without the prior written consent of the other party, neither party shall knowingly solicit for hire any existing employee of the other party.
Section 14.21 Counterparts
This AGREEMENT may be executed in several counterparts, each of which when so executed shall be deemed to be an original and shall have the same force and effect as an original but such counterparts together shall constitute but one and the same instrument.
This AGREEMENT is agreed to and accepted by:
                 
Merck KGaA       Biomira Management Inc.
 
               
By:
  /s/ Andreas Stickler       By:   /s/ Robert L. Kirkman, M.D.
 
               
 
  Title: Head of M&A           Title: President & CEO
 
               
 
               
AND
               
 
               
By:
  /s/ Jens Eckhardt            
 
               
    Title: Associate General Counsel       [IN DUPLICATE]
 
               
 
               
 
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APPENDIX 1
CORE PATENT COUNTRIES
[+]
 
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APPENDIX 2
ONCOTHYREON KNOW-HOW
[+] [Redaction continues for two pages]
 
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APPENDIX 3
ONCOTHYREON PATENT RIGHTS
[+]
 
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APPENDIX 4
PROTOCOL FOR PHASE III CLINICAL TRIAL
OF BLP25 FOR NON-SMALL CELL LUNG CANCER
[+]
 
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APPENDIX 5
TRADEMARKS
TRADE-MARK STATUS FOR THEXOPE
(UPDATED DECEMBER 18, 2008)
                     
COUNTRY/       FILING   FILING/REGISTRATION       GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   STATUS   REGISTERED
U.S.
  Biomira Inc. Assigned to Oncothyreon Canada Inc. effective Dec 10, 2007 since we could not seek an extension of time to file a DOU unless the current owner made such a request. Biomira Inc. was not longer an entity as it had merged and changed its name.   January 26, 2007   77/092,486   Initial U.S. application lapsed as use had not commenced before deadline for filing a declaration of use and payment. Based on instructions, we have re-filed an application in the U.S. on an intent-to use basis.

Mark was published in the Official Gazette on November 6, 2007.

Any third party will have 30 days within which to oppose (extendable out to 120 days from November 6, 2007 without consent and an additional 60 days with consent)
  Immunological preparations used for the prevention and treatment of cancer.
 
 
              Mark was allowed and a DOU must be filed by January 29, 2009    
TRADE-MARK STATUS FOR JEXAVE
(UPDATED DECEMBER 18, 2008)
                     
COUNTRY/       FILING   FILING/REGISTRATION       GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   STATUS   REGISTERED
U.S.
  Biomira Inc. Assigned to Oncothyreon Canada Inc. effective Dec 10, 2007 since we could not seek an extension of time to file a DOU unless the current owner made such a request. Biomira Inc. was not longer an entity as it had merged and changed its name.   January 26, 2007   77/092,474   Initial U.S. application lapsed as use had not commenced before deadline for filing a declaration of use and payment. Based on instructions, we have re-filed an application in the U.S. on an intent-to use basis.

Mark was published in the Official Gazette on November 6, 2007.

Any third party will have 30 days within which
  Immunological preparations used for the prevention and treatment of cancer.


 

51

                     
COUNTRY/       FILING   FILING/REGISTRATION       GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   STATUS   REGISTERED
 
              to oppose (extendable out to 120 days from November 6, 2007 without consent and an additional 60 days with consent)

Mark was allowed and a DOU must be filed by January 29, 2009.
   
TRADE-MARK STATUS FOR SIATOPE
(UPDATED DECEMBER 18, 2008)
                     
COUNTRY/       FILING   FILING/REGISTRATION       GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   STATUS   REGISTERED
Benelux
  Biomira B.V.   April 5, 2005   763778   Registered and protected until March 16, 2015.

Name change submitted and recorded.
  Pharmaceutical and veterinary preparations.
 
                   
United States
  Biomira Inc. Assigned to Oncothyreon Canada Inc. effective Dec 10, 2007 since we could not seek an extension of time to file a DOU unless the current owner made such a request. Biomira Inc. was not longer an entity as it   January 26, 2007. Notice of Allowance January 29, 2008   Serial number 77/092,448   Office Action was issued requiring a clarification of goods. The earlier SIATOPE application was abandoned on February 4, 2007 due to failure to file a declaration of use after the last extension of time. Based on instructions, we re-filed on an intent to use   Immunological preparations used for the prevention and treatment of cancer.


 

52

                     
COUNTRY/       FILING   FILING/REGISTRATION       GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   STATUS   REGISTERED
 
  had merged and changed its name.           basis.

Mark was published in the Official Gazette on November 6, 2007.

Any third party will have 30 days within which to oppose (extendable out to 120 days from November 6, 2007 without consent and an additional 60 days with consent)

Mark was allowed and a DOU must be filed by July 29, 2008. Extension granted to January 29, 2009
   
TRADE-MARK STATUS FOR STENVAX
(UPDATED DECEMBER 18, 2008)
                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
EU
  Biomira B.V.   06/09/05

Priority date:
16/03/05 based
on Benelux
application
  004620258   Certificate issued. Trade-mark protected until September 6, 2015.

Name change to Merck KGaA recorded.
  Pharmaceutical and veterinary preparations.
 
                   
Benelux
  Biomira B.V.   06/09/05   Certificate number
763776
  Certificate issued. Trade-mark protected until March 16, 2015.

Name change recorded.
  Pharmaceutical and veterinary preparations.


 

53

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
IR — WIPO
  Biomira B.V.   06/09/05   IR Number 863163   Certificate issued.

Name change to Merck KGaA recorded.

Protected in 36 countries (see attached) until September 6, 2015 as per instructions March 3 and August 30, 2005.

Singapore office advised the mark is protected.

North Korean office extends protection.

South Korean office issued a preliminary refusal. Response submitted and refusal lifted. Certificate issued.

Japan notified that mark is registered.

Australia notified that mark is registered

Norway notified that protection extended.

Turkey notified that protection extended

Romania —
  Pharmaceutical and veterinary preparations.

(except in Romania, “pharmaceutical products” only).


 

54

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              preliminary refusal of protection based on “STAMVAX” registered for Veterinary products. Protection extended for “pharmaceutical products” only.

Georgia notified that protection extended.

U.S.A. — preliminary objection overcome. Mark registered March 11, 2008. Certificate received.

Montenegro protected
   
 
                   
United States
  Biomira B.V.       76/504,953 (abandoned)


Registration 3,395,103
(subsequent
designation via WIPO)
79/034,455
  Initial U.S. application abandoned for failure to file a DOU by Feb 3, 2007.

Subsequent designation via WIPO of USA registered March 11, 2008. Certificate received.
  Immunological pharmaceutical preparations used for the prevention and treatment of cancer.
 
                   
Canada
  Biomira Inc.   14/12/05   1283920   Allowed. Declaration of use and fee must be submitted by   Immunological
pharmaceutical
preparations used
for the prevention
or treatment of


 

55

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              June 14, 2009   cancer.
 
                   
New Zealand
  Biomira B.V   08/09/05   735373   Certificate received. Trade-mark protected until March 16, 2015.

Name change recorded.
  Pharmaceutical and veterinary preparations.
 
                   
South Africa
  Biomira B.V.   07/09/05   2005/18911   Notice of Allowance granted. To be published January 29, 2009, followed by a 3 month opposition period.

Name change recorded
   
 
                   
Argentina
  Biomira Europe B.V.   14/09/05   2.174.144   Published November 9, 2005. Opposed by owners of OPENVAS. Opponent has withdrawn opposition based on an agreement with local counsel to limit our list of goods and services.

Registered until August 9, 2017. Renewable for 10 years. Must use in last five years before renewal and subject to cancellation if not used during a 5 year period.
  Pharmaceutical preparations for human use, excluding pharmaceuticals for the treatment of erectile dysfunction.

This description is based on negotiations with the opponent, LABORATORIO KAMPEL.

Certificate Received.


 

56

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
Bolivia
  Biomira Europe B.V.   15/09/05   120046   Registered until March 2, 2017   Pharmaceutical and veterinary preparations.
 
                   
Brazil
  Biomira BV   18/10/05   827760299   Published in Gazette. Instructions provided to proceed to registration May 2008

Effectively registered as of July 08; waiting for certificate
  Pharmaceutical and veterinary preparations.
 
                   
Chile
  Biomira Europe B.V.   15/09/05   750.682   Certificate received. Trade-mark protected until February 14, 2016.

Priority claim not reflected. Issue being resolved.

A registered mark must be shown with the words “Marca Registrada” or the initials M.R. or ®
  Pharmaceutical and veterinary preparations.
 
                   
Colombia
  Biomira Europe B.V.   15/09/05   05-093.461   Registered until June 14, 2016

Must be used within 3 years of registration in one of the countries of the Andean Community Pact to avoid cancellation by a third party for non-use
  Pharmaceutical and veterinary preparations.


 

57

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
Ecuador
  Biomira Europe B.V.   9/9/05   161784   Certificate received. Trade-mark protected until October 12, 2016   Pharmaceutical, veterinary and sanitary products; dietary substances for medical use, food for babies; poultices, material for priests (dressings) materials to fill the teeth and for dental molds; disinfectant; products for the destruction of harmful animals; fungicides, herbicides.
 
                   
Mexico
  Biomira B.V.   19/09/05 (due to a national holiday on the 15 th )   918964   Certificate received. Trade-mark protected until September 19, 2015.   Pharmaceutical and veterinary preparations.
 
                   
Peru
  Biomira Europe B.V.   09/09/05   254052-2005   Certificate received. Trade-mark protected until May 5, 2016.   Pharmaceutical preparations and veterinary medicine.
 
                   
Venezuela
  Biomira Europe B.V.   13/09/05   20170-05

P-274382
  Cleared for registration October 25, 2006. It may take up to two years until the registration certificate is issued.   Pharmaceutical and veterinary preparations.
 
                   
Hong Kong
  Biomira Europe B.V.   10/09/05   300493083   Certificate received.

Trade-mark protected until September 9,
  Pharmaceutical and veterinary preparations.


 

58

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              2015.

— must be used within 3 years or can be attacked for non-use

Name change to Merck KGaA recorded.
   
 
                   
India
  Biomira Europe B.V.   16/09/05   1385354   Filed. Objections raised by Trade-mark office regarding confusingly similar names. It appears to be routine practice in India for the Office to raise an objection to any application that may be remotely similar to existing marks. Local counsel has filed compelling objections to the Examiner’s report and are awaiting a response regarding a hearing date. Hearing occurred and arguments accepted. Mark will now be published.   Pharmaceutical and veterinary preparations.
 
                   
Indonesia
  Biomira B.V.   14/12/05   D00.2005.019211   Registered until December 14, 2015.   Pharmaceutical and veterinary preparations.
 
                   
Israel
  Biomira B.V.   7/09/05   183511   Registered until September 7,   Pharmaceutical
preparations for


 

59

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              2015

Name change recorded.
  the prevention and treatment of cancer.
 
                   
Lebanon
  Biomira BV   13/09/05   103792   Certificate issued. Protected until September 13, 2020.

Name change recorded.
  Pharmaceutical and veterinary preparations.
 
                   
Malaysia
  Biomira Europe B.V.   09/09/05   05015148   Registered until March 16, 2015. Must use mark by November 2010 at the latest and mark is subject to cancellation if not used during a three year period.   Pharmaceutical and veterinary preparations.

Certificate received.
 
                   
Taiwan
  Biomira Europe B.V.   08/09/05   094043194   Certificate issued. Protected until June 15, 2016. Should be used within 3 years of registration   Pharmaceutical and veterinary preparations.
 
                   
U.A. Emirates
  Biomira Europe B.V.   14/09/2005   73130   Registered until September 14, 2015   Pharmaceutical preparations and veterinary.
TRADE-MARK STATUS FOR STIMRIS
(UPDATED DECEMBER 18, 2008)
                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
EU
  Biomira B.V.   16/03/2005   004341442   Certificate issued (awaiting receipt).

Protected in
  Pharmaceutical and veterinary preparations.


 

60

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              25 EU member states until
March 16, 2015.

Name change to Merck KGaA recorded.
   
 
                   
Benelux
  Biomira B.V.   12/08/2005   Certificate number
763779
  Certificate issued. Trade-mark protected until March 16, 2015.

Name change recorded.
  Pharmaceutical and veterinary preparations.
 
                   
IR — WIPO
  Biomira B.V.   12/08/2005   IR number 863224   Certificate issued.

Name change to Merck KGaA recorded.

Protected in 51 countries (see attached) until August 12, 2015 as per instructions March 3 and August 30, 2005.

Singapore office advised the mark is protected.

North Korean office extends protection.

South Korean office issued a preliminary refusal. Response submitted and
  Pharmaceutical and veterinary preparations.


 

61

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              refusal lifted. Certificate issued

Japan-Certificate issued.

Australia notified that mark is registered and protected until August 12, 2015.

Norway notified that protection extended.

Turkey notified that protection extended

Georgia extends protection.

Syria extends protection.

Armenia extends protection.

U.S.A. — preliminary objection overcome. Mark registered March 11, 2008.
Certificate received.

Montenegro protected
   
 
                   
Netherlands

Antilles
  Biomira Europe B.V.   16/03/2005   11278   Registered.

May 18, 2005. Certificate
  Pharmaceutical and veterinary preparations


 

62

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              issued. Protected until March 16, 2015.    
 
                   
United States
  Biomira B.V.   08/04/2003   Serial number
76/504,971
(abandoned)

Registration
3,395,128
(subsequent
designation via
WIPO) Serial
79/035,623
  Requires filing of a Declaration of Use. 5 th and final extension obtained until Feb 3, 2007. Abandoned.

Certificate of Registration received. Subsequent designation via WIPO of USA registered March 11, 2008 based on filing of Declaration of Intent to Use
  Immunological pharmaceutical preparations used for the prevention and treatment of cancer.
 
                   
Canada
  Biomira Inc.   10/03/2005   1250588   Application was allowed. A DOU needs to be filed. An extension of time was granted to March 2009   Immunological pharmaceutical preparations used for the prevention or treatment of cancer.
 
                   
New Zealand
  Biomira B.V.   08/09/05   735372   Certificate issued. Trade-mark protected until March 16, 2015.

Name change recorded.
  Pharmaceutical and veterinary preparations
 
                   
South Africa
  Biomira B.V.   07/09/05   2005/18910   Application
accepted for
advertisement for
Journal
   


 

63

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              March 26, 2008. 3 month opposition period follows.

Name change recorded.
   
 
                   
Argentina
  Biomira Europe B.V.   14/09/05   2.618.031   Published November 9, 2005.

TM registered until November 26, 2016. Certificate received
  Pharmaceutical preparations and veterinary preparations

Biomira BV filed opposition against trade-mark SIMRAS owned by Ferrer Internacional SA. Opponent has not been in touch with our local counsel as of May 8, 2008 and we are waiting to see whether they will restrict the list of goods and services in their application.
 
                   
Bolivia
  Biomira Europe B.V.   15/09/05   120047   Registered until March 2, 2017   Pharmaceutical and veterinary preparations
 
                   
Brazil
  Biomira BV   18/10/05   827760310   Published in Gazette. Instructions provided to proceed to registration May 08

Effectively
  Pharmaceutical and veterinary preparations.


 

64

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              registered as of July 08; waiting for certificate    
 
                   
Chile
  Biomira Europe B.V.   15/09/05   750.683   Certificate received. Trade-mark protected until February 14, 2016.

Priority claim not reflected. Issue being resolved.

A registered mark must be shown with the words “Marca Registrada” or the initials M.R. or ®
  Pharmaceutical and veterinary preparations.
 
                   
Colombia
  Biomira Europe B.V.   15/09/05   05-093-460   Certificate received. Trade-mark protected until May 5, 2016.

Must be used within 3 years of registration to avoid attack.
  Pharmaceutical and veterinary preparations.
 
                   
Ecuador
  Biomira Europe B.V.   9/9/05   161785   Certificate received. Trade-mark protected until October 12, 2016   productos farmacéuticos, veterinarios e higiénicos; sustancias dietéticas para uso médico, alimentos para bebés; emplastos, material para curas (apósitos) materials para empastar los


 

65

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
                  dientes y para moldes dentales; desinfectantes; productos para la destrucción de animales dañinos; fungicidas, herbicidas.

pharmaceutical, veterinary and sanitary products; dietary substances for medical use, food for babies; poultices, material for priests (dressings) materials to fill the teeth and for dental molds; disinfectant; products for the destruction of harmful animals; fungicides, herbicides.
 
                   
Mexico
  Biomira B.V.   19/9/05 (due to a national holiday on the 15 th )   918963   Certificate received. Trade-mark protected until September 19, 2015.   Pharmaceutical and veterinary preparations.
 
                   
Peru
  Biomira Europe B.V.   09/09/05   254054-2005   Certificate received. Trade-mark protected until May 5, 2016.   Pharmaceutical preparations and veterinary medicine.
 
                   
Venezuela
  Biomira Europe B.V.   13/09/05   20169-05
P-274381
  Cleared for registration October 25,   Pharmaceutical and veterinary preparations.


 

66

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              2006. It may take up to two years until the registration certificate is issued.    
 
                   
Hong Kong
  Biomira Europe B.V.   10/09/05   300493092   Certificate received. Trade-mark protected until September 9, 2015.

— must be used within 3 years or can be attacked for non-use

Name change to Merck KGaA recorded.
  Pharmaceutical and veterinary preparations.
 
                   
India
  Biomira Europe B.V.   16/09/05   1385353   Filed. Objections raised by Trade-mark office regarding confusingly similar names. It appears to be routine practice in India for the Office to raise an objection to any application that may be remotely similar to existing marks. Local counsel has filed compelling objections to the   Pharmaceutical and veterinary preparations.


 

67

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              Examiner’s report and are awaiting a response.

February 19, 2008 — the application has been published; however, there are significant errors on the record and local counsel has been notified to correct them.
   
 
                   
Indonesia
  Biomira B.V.   14/12/05   D00.2005.019212   Registered until December 14, 2015   Pharmaceutical and veterinary preparations.
 
                   
Israel
  Biomira B.V.   7/09/05   183510   Registered until September 7, 2015

Typographical filing error to be corrected by local counsel.

Name change recorded.
  Pharmaceutical preparations for the prevention and treatment of cancer.
 
                   
Lebanon
  Biomira BV   13/09/05   103793   Certificate issued. Protected until September 13, 2020.

Name change recorded.
  Pharmaceutical and veterinary preparations.
 
                   
Malaysia
  Biomira Europe B.V.   09/09/05   05015149   Registered until March 16, 2015. Must use mark by   Pharmaceutical and veterinary preparations.


 

68

                     
                STATUS AND    
COUNTRY/       FILING   FILING/REGISTRATION   SPECIAL   GOODS
REGISTRAR   APPLICANT   DATE   NUMBER   NOTES   REGISTERED
 
              mark by November 2010 at the latest and mark is subject to cancellation if not used during a three year period.   Certificate received.
 
                   
Taiwan
  Biomira Europe B.V.   08/09/05   094043196   Certificate issued. Protected until June 15, 2016. Should be used within 3 years of registration.   Pharmaceutical and veterinary preparations.
 
                   
U.A. Emirates
  Biomira Europe B.V.   14/09/05   73129   Registered until September 14, 2015   Pharmaceutical preparations and veterinary.
 
+   DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION
EXHIBIT 12.1
Oncothyreon Inc. and Consolidated Subsidiaries
Computation of Deficiency in the Coverage of Fixed Charges by Earnings Before Fixed Charges
         
    For the Three  
    Months  
    Ended  
    March 31, 2009  
Earnings before fixed charges:
       
Loss from continuing operations before income taxes, minority interest and income/(loss) from equity investees
  $ (2,472 )
Add fixed charges
    8  
Add amortization of capitalized interest
     
Add distributed income of equity investees
     
Subtract capitalized interest
     
 
     
Loss before fixed charges
  $ (2,464 )
 
     
Fixed charges:
       
Interest expense
  $  
Amortization of debt expense
     
Estimate of interest expense within rental expense
    8  
Preference security dividend requirements of consolidated subsidiaries
     
 
     
Total fixed charges
  $ 8  
 
     
Deficiency of earnings available to cover fixed charges
  $ (2,472 )
 
     

 

EXHIBIT 31.1
CERTIFICATION
     I, Robert L. Kirkman, M.D., certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Oncothyreon Inc., (the “Registrant”);
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
         
May 15, 2009
  /s/ Robert L. Kirkman, M.D.
 
Robert L. Kirkman, M.D.,
   
 
  Chief Executive Officer and President    

 

EXHIBIT 31.2
CERTIFICATION
     I, Shashi K. Karan, certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Oncothyreon Inc., (the “Registrant”);
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d - 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
         
May 15, 2009
  /s/ Shashi K. Karan
 
Shashi K. Karan,
   
 
  Corporate Controller and Corporate Secretary    

 

EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
     I, Robert L. Kirkman, M.D., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Oncothyreon Inc. on Form 10-Q for the quarterly period ended March 31, 2009, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oncothyreon Inc.
         
May 15, 2009
  /s/ Robert L. Kirkman, M.D.
 
Robert L. Kirkman, M.D.,
   
 
  Chief Executive Officer and President    
 
  (Principal Executive Officer)    
     A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Oncothyreon Inc. and will be retained by Oncothyreon Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
     This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Oncothyreon Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Oncothyreon Inc. specifically incorporates it by reference.

 

EXHIBIT 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
     I, Shashi K. Karan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Oncothyreon Inc. on Form 10-Q for the quarterly period ended March 31, 2009, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oncothyreon Inc.
         
May 15, 2009
  /s/ Shashi K. Karan
 
Shashi K. Karan
   
 
  Corporate Controller and Corporate Secretary    
 
  (Principal Financial and Accounting Officer)    
     A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Oncothyreon Inc. and will be retained by Oncothyreon Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
     This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Oncothyreon Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Oncothyreon Inc. specifically incorporates it by reference.