News Column

TEKMIRA PHARMACEUTICALS CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 14, 2014

You should read the following discussion and analysis by our management of our financial position and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2013 and our unaudited condensed consolidated financial statements for the three and six month periods ended June 30, 2014. Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.



FORWARD-LOOKING STATEMENTS

The information in this report contains forward-looking information and forward-looking statements (collectively, forward-looking statements) within the meaning of applicable securities laws. All statements other than statements relating to historical matters should be considered forward-looking statements. When used in this report, the words "believe,""expect," "plan," "anticipate," "estimate," "predict," "may," "could," "should," "intend," "will," "target," "goal" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Forward-looking statements in this report include statements about Tekmira's strategy, future operations, clinical trials, prospects and the plans of management; RNAi (ribonucleic acid interference) product development programs; the effects of Tekmira's products on the treatment of cancer, chronic Hepatitis B infection, infectious disease, alcohol use disorder, and other diseases; new product development and partnering opportunities; the potency and broader therapeutic index of third generation-LNP formulation; Tekmira's strategy for optimizing market access for TKM-HBV; filing an Investigational New Drug (IND) application or equivalent in the second half of 2014 in order to advance TKM-HBV into a Phase I clinical trial in 2015;Gastrointestinal Neuroendocrine Tumors (GI-NET) or Adrenocortical Carcinoma (ACC) enrollment in a Phase I/II clinical trial with TKM-PLK1, and expected interim data from this trial in the second half of 2014; the initiation of another Phase I/II clinical trial with TKM-PLK1 enrolling patients with Hepatocellular Carcinoma (HCC); the presentation of results of Tekmira's pre-clinical work and potential partnering or external funding opportunities for TKM-ALDH2, the timing of filing an IND or equivalent; the Phase I clinical trial with TKM-Ebola; Fast Tract designation from the US FDA for the development of TKM-Ebola; completion of the necessary preclinical work to be in a position to file on the development of TKM-Ebola under the "Animal Rule": the clinical hold on TKM-Ebola by the FDA, Tekmira's response to the partial clinical hold and expectations of resolving the matter by the fourth quarter of this year; the potential for use of TKM-Ebola in individuals who have confirmed or suspected Ebola infection; the evaluation of options for the use of TKM-Ebola, including discussions with government agencies and NGO's (including the World Health Organization) on the potential use of TKM-Ebola to treat infected individuals; additional funding opportunities or development partnerships for TKM-Marburg; our focus on rare diseases, including glycogen storage diseases and rare forms of hypertriglyceridemia; the generation of data and the expectation of identifying another development candidate in the latter portion of 2014;Alnylam's three LNP-based products in clinical development (ALN-TTR02 (patisiran), ALN-VSP and ALN-PCS02); arbitration proceedings with Alnylam in connection with ALN-VSP;the potential quantum of value of the transactions contemplated in the Monsanto option agreement; ongoing advances in next-generation LNP technologies; anticipated royalty receipts based on sales of Marqibo; our worldwide, non-exclusive license to Unlocked Nucleobase Analog from Marina; the extension of our collaboration agreement with BMS; future changes in the fair value of our warrant liability based on our share price; foreign exchange rate fluctuation and Tekmira's currency needs; statements regarding the sufficiency of our cash resources for the next 12 months; statements with respect to revenue and expense fluctuation and guidance; the quantum and timing of potential funding. With respect to the forward-looking statements contained in this report, Tekmira has made numerous assumptions regarding, among other things: LNP's status as a leading RNAi delivery technology; Tekmira's research and development capabilities and resources; the effectiveness of Tekmira's products as a treatment for cancer, chronic Hepatitis B infection, infectious disease, alcohol use disorder, or other diseases; the timing and quantum of payments to be received under contracts with Tekmira's partners including Alnylam, Spectrum, Monsanto and the DoD; assumptions related to Tekmira's share price volatility, expected lives of warrants and warrant issuances and/or exercises; and Tekmira's financial position and its ability to execute its business strategy. While Tekmira considers these assumptions to be reasonable, these assumptions are inherently subject to significant business, economic, competitive, market and social uncertainties and contingencies. Our actual results could differ materially from those discussed in the forward-looking statements as a result of a number of important factors, including the risk factors discussed in this report and the risk factors discussed in our Annual Report on Form 10-K under the heading "Risk Factors," and the risks discussed in our other filings with the Securities and Exchange Commission and Canadian Securities Regulators. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis, judgment, belief or expectation only as of the date hereof. We explicitly disclaim any obligation to update these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as required by law. OVERVIEW Tekmira is a biopharmaceutical company focused on developing and advancing novel RNA interference therapeutics, as well as pursuing partnering opportunities for its leading lipid nanoparticle (LNP) delivery technology. RNAi has the potential to generate a broad new class of therapeutics that take advantage of the body's own natural processes to silence genes-or more specifically to eliminate specific gene-products, from the cell. With this ability to eliminate disease causing proteins from cells, RNAi products represent opportunities for therapeutic intervention that have not been achievable with conventional drugs. Delivery technology is crucial in order to protect RNAi drugs in the blood stream following administration, allow efficient delivery to the target cells, and facilitate cellular uptake and release into the cytoplasm of the cell. Tekmira's LNP technology represents the most widely adopted delivery technology in RNAi, enabling eight clinical trials and administered to well over 220 patients to date. Because LNP can enable a wide variety of nucleic acid payloads, including messenger RNA, we continue to see new product development and partnering opportunities based on our industry-leading delivery expertise. 17 --------------------------------------------------------------------------------



Our Product Candidates

With both anti-viral and oncology product platforms, we are advancing our RNAi product pipeline with a focus on areas where there is a significant unmet medical need and commercial opportunity.

TKM-HBV

Our extensive experience in the anti-viral arena has been applied to our TKM-HBV program and the development of an RNAi therapeutic for the potential treatment of chronic Hepatitis B infection. There are over 350 million people infected globally with Hepatitis B virus (HBV). In the United States there are approximately 1.4 million HBV chronically infected individuals. We are focused on addressing the unmet need of eliminating HBV surface antigen expression in chronically infected patients. Small molecule nucleotide therapy is rapidly becoming the standard of care for chronically HBV infected patients. However, many of these patients continue to express a viral protein called surface antigen. This protein causes inflammation in the liver leading to cirrhosis and in some cases to hepatocellular cancer and death. TKM-HBV is designed to eliminate surface antigen expression in these chronically infected patients. The rationale is that by blocking surface antigen - and reducing much of the pathology associated with surface antigen expression - this therapy will also allow these patients, a potential to 'sero-convert', or raise their own antibodies against the virus, and effect a functional cure of the infection. TKM-HBV is being developed as a multi-component RNAi therapeutic that targets multiple sites on the HBV genome. Our product targets the most common genotypes (A-D), of the Hepatitis virus found in infected individuals across North America, Europe and Asia, This strategy allows us to optimize market access for TKM-HBV. Because HBV is a viral infection of the liver, the TKM-HBV therapeutic will employ a liver-centric, third generation-LNP formulation that is more potent and has a broader therapeutic index than any LNP currently in clinical development. We anticipate filing an Investigational New Drug (IND) application, or equivalent, in the second half of 2014 in order to advance TKM-HBV into a Phase I clinical trial in 2015.



TKM-PLK1

Our oncology product platform, TKM-PLK1, targets polo-like kinase 1 (PLK1), a protein involved in tumor cell proliferation and a validated oncology target. Inhibition of PLK1 expression prevents the tumor cell from completing cell division, resulting in cell cycle arrest and death of the cancer cell. Medical literature provides evidence that patients with elevated levels of PLK1 in their tumors exhibit poorer prognosis and survival rates. We presented updated Phase I TKM-PLK1 data at the 6th Annual NET Conference hosted by the North American Neuroendocrine Tumor Society (NA-NETS) held in Charleston, South Carolina on October 4, 2013. This data set included a total of 36 patients in a population of advanced cancer patients with solid tumors. Doses ranged from 0.15 mg/kg to 0.90 mg/kg during the dose escalation portion of the trial, with the maximum tolerated dose (MTD) of 0.75 mg/kg. Serious adverse events (SAEs) were experienced by four subjects in this heavily pre-treated, advanced cancer patient population, with three of these four subjects continuing on study. Forty percent (6 out of 15) of patients evaluable for response, treated at a dose equal to or greater than 0.6 mg/kg, showed clinical benefit. Three out of the four Adrenocortical Carcinoma (ACC) patients (75%) treated with TKM-PLK1 achieved stable disease, including one patient who saw a 19.3% reduction in target tumor size after two cycles of treatment and is still on study receiving TKM-PLK1. Of the two Gastrointestinal Neuroendocrine Tumors (GI-NET) patients enrolled, both (100%) experienced clinical benefit: one patient had a partial response based on RECIST response criteria, and the other GI-NET patient achieved stable disease and showed a greater than 50% reduction in Chromogranin-A (CgA) levels, a key biomarker used to predict clinical outcome and tumor response. Based on the encouraging results from the dose escalation portion and expansion cohort from our Phase I TKM-PLK1 clinical trial, we have expanded into a Phase I/II clinical trial with TKM-PLK1, which is specifically enrolling patients within two therapeutic indications: advanced GI-NET or ACC. This multi-center, single arm, open label study is designed to measure efficacy using RECIST criteria and tumor biomarkers for GI-NET patients and ACC patients as well as to evaluate the safety, tolerability and pharmacokinetics of TKM-PLK1. TKM-PLK1 will be administered weekly with each four-week cycle consisting of three once-weekly doses followed by a rest week. It is expected that approximately 20 patients with advanced GI-NET or ACC tumors will be enrolled in this trial, with a minimum of 10 GI-NET patients to be enrolled. We expect to report interim data from this trial in the second half of 2014. Thus far, we have been able to assess response for four ACC patients and two GI-NET patients. Three of these four have demonstrated a clinical benefit, including one RECIST qualifying partial response. This patient, with the partial response, has been on TKM-PLK1 for 15months and has experienced an over 44% reduction in their target tumor mass, located outside of the liver. This patient continues on the study with continued tumor response. Furthermore, this lesion is showing evidence of necrosis which is indicative of anti-tumor activity. Both GI-NET patients demonstrated clinical benefit, with one patient having one RECIST qualifying partial response. 18 -------------------------------------------------------------------------------- In May 2014, we initiated another Phase I/II clinical trial with TKM-PLK1, enrolling patients with Hepatocellular Carcinoma (HCC). This clinical trial is a multi-center, single arm, open label dose escalation study designed to evaluate the safety, tolerability and pharmacokinetics of TKM-PLK1 as well as determine the maximum tolerated dose in HCC patients and measure the anti-tumor activity of TKM-PLK1 in HCC patients.



TKM-ALDH2

TKM-ALDH2 is a unique application of RNAi. In the United States, approximately 18 million people have an alcohol use disorder. Two million of these seek treatment each year, and approximately 350,000 of these patients receive pharmacotherapy for alcohol use disorder. TKM-ALDH2 will be developed for a high value segment of the alcohol use disorder market, with a target patient population who have moderate to severe alcohol use disorder, such as educated professionals who have support and are motivated to seek treatment. TKM-ALDH2 has been designed to knock down or silence the ALDH2 enzyme to induce long term acute sensitivity to ethanol. Aldehyde dehydrogenase 2 (ALDH2) is a key enzyme in ethanol metabolism. Inhibition of aldehyde dehydrogenase 2 activity, through the silencing of ALDH2, results in the build-up of acetaldehyde. Elevated levels of acetaldehyde are responsible for adverse physiological effects that cause individuals to avoid alcohol consumption. We have developed an extremely potent RNAi trigger and combined it with a third generation LNP. Human proof of concept for ALDH2 inhibition already exists in the form of the approved drug disulfiram. However, disulfiram's efficacy suffers from poor compliance because it has to be taken daily. We believe TKM-ALDH2 will induce prolonged ethanol sensitivity that will enable it to overcome the compliance limitations associated with daily dosing.



We expect to present the results of our pre-clinical work at an appropriate scientific conference and we are exploring partnering or external funding opportunities. We will be deferring the filing of an IND, or equivalent regulatory filing, beyond this year.

TKM-Ebola and TKM-Marburg

TKM-Ebola, an anti-Ebola viral therapeutic, is being developed under a contract with the U.S. Department of Defense (DoD) Joint Project Manager Medical Countermeasure Systems (JPM-MCS). In 2010, preclinical studies were published in the medical journal The Lancet demonstrating that when RNAi triggers targeting the Ebola virus and delivered by Tekmira's LNP technology were used to treat previously infected non-human primates, the result was 100 percent protection from an otherwise lethal dose of Zaire Ebola virus (Geisbert et al., The Lancet, Vol. 375, May 29, 2010). In July 2010, we signed a contract with the DoD under their JPM-MCS program to advance TKM-Ebola, providing us with approximately $140.0 million in funding for the entire program. In May 2013, we announced that our collaboration with the JPM-MCS was modified and expanded to include advances in LNP formulation technology since the initiation of the program in 2010. The recent contract modification increases the stage one targeted funding from $34.7 million to $41.7 million. In April 2014, we signed a contract modification with the DoD to increase the stage one targeted funding by $2.1 million to $43.8 million to compensate us for unrecovered costs that occurred in 2012 and to provide additional funding should it be required. TKM-Ebola is being developed under specific FDA regulatory guidelines called the "Animal Rule." The Animal Rule provides that under certain circumstances, where it is unethical or not feasible to conduct human efficacy studies, the FDA may grant marketing approval based on adequate and well-controlled animal studies when the results of those studies establish that the drug is reasonably likely to produce clinical benefit in humans. Demonstration of the product's safety in humans is still required. In January 2014, we commenced a Phase I clinical trial with TKM-Ebola. The trial is a randomized, single-blind, placebo-controlled study involving single ascending doses and multiple ascending doses of TKM-Ebola. The study will assess the safety, tolerability and pharmacokinetics of administering TKM-Ebola to healthy adult subjects. Four subjects will be enrolled per cohort. There are four cohorts for a total of 16 subjects in the single dose arm, and three planned cohorts for a total of 12 subjects in the multiple dose arm of the trial. Each cohort will enroll three subjects who receive TKM-Ebola, and one who will receive placebo. The single ascending dose portion of the TKM-Ebola Phase I clinical trial has been successfully completed in healthy human volunteers. As per the protocol maximum tolerated dose (MTD) was established to be 0.3 mg/kg for healthy subjects without steroid premedication. In March 2014, we were granted a Fast Track designation from the U.S. Food and Drug Administration (FDA) for the development of TKM-Ebola. The FDA's Fast Track is a process designed to facilitate the development and expedite the review of drugs in order to get important new therapies to the patient earlier. In July 2014, we received notice from the U.S. Food and Drug Administration (FDA) that the TKM-Ebola program had been placed on clinical hold. The FDA is seeking data to elucidate the mechanism of potential cytokine release, which was observed at higher doses, in the single ascending dose portion of the study, and a proposed modification to the protocol for the multiple ascending dose portion of the trial to ensure the safety of healthy volunteers. In August 2014, we received written notice from the FDA modifying the clinical hold to a "partial clinical hold," allowing for the potential use of TKM-Ebola in individuals who have a confirmed or suspected Ebola infection. The program remains on clinical hold as it relates to the multi-ascending dose portion of the Phase I clinical study in healthy volunteers with TKM-Ebola. We expect this matter will be resolved by the fourth quarter of this year. 19 -------------------------------------------------------------------------------- Our therapeutic, TKM-Ebola, is currently an unapproved agent and the regulatory framework to support its use in Africa has not yet been established. Given the severity of the situation, we are carefully evaluating options for use of our investigational drug within accepted clinical and regulatory protocols. This includes discussions with government agencies and NGO's, including the World Health Organization, in various countries on the potential use of TKM-Ebola to treat infected individuals. There can be no assurance that an appropriate framework for the use of this product will be found. We will continue to provide updates as necessary when clinical and regulatory pathways become confirmed. In April 2014, we presented preclinical data from a collaboration between Tekmira and UTMB showing 100% survival was achieved with TKM-Marburg when dosing at 0.5 mg/kg began 72 hours after infection with otherwise lethal quantities of the virus. Dosing then continued once daily for seven days. Earlier data from this collaborative research between Tekmira and UTMB showed 100% survival was achieved with TKM-Marburg when dosing at 0.5 mg/kg began either one hour, 24 hours, or 48 hours after infection with otherwise lethal quantities of the virus. These studies represent the first known demonstration of protection of non-human primates from Marburg-Angola, the most lethal strain of Marburg virus. In February 2014, UTMB and Tekmira, along with other collaborators, were awarded additional funding from the NIH in support of this research. Tekmira expects to continue to build on these data and pursue additional funding opportunities or development partnerships for TKM-Marburg.



Other Preclinical Candidates

We are currently evaluating several other preclinical candidates with potential in diverse therapeutic areas using key criteria to prioritize efforts. Given the extremely high efficiency of delivery for third generation liver-centric LNP formulations, we are focused on rare diseases where the molecular target is found in the liver, where early clinical proof-of-concept can be achieved, and where there may be accelerated development opportunities. Two areas of interest are glycogen storage diseases and rare forms of hypertriglyceridemia. Our research team intends to continue to generate preclinical data to support the advancement of the most promising of these targets, and we expect to be in a position to identify another development candidate in the latter portion of 2014.



Advancements in LNP Technology

We continue to develop our proprietary "gold standard" LNP delivery technology and receive clinical validation from LNP-based products currently in clinical trials. The most advanced LNP-enabled therapeutic, which is being developed by Alnylam Pharmaceuticals, Inc., has now entered Phase III clinical development. Ongoing advances in next-generation LNP technologies include increasing potency as well as expanding the therapeutic index. Our LNP technology remains an important cornerstone of our business development activities moving forward. Because LNP can enable a wide variety of nucleic acid payloads, including messenger RNA, we continue to see new product development and partnering opportunities based on our industry-leading delivery expertise. In February 2014, we presented new preclinical data at the AsiaTIDES scientific symposium demonstrating that mRNA when encapsulated and delivered using Tekmira's LNP technology can be effectively delivered and expressed in liver, tumors and other specific tissues of therapeutic interest.



Technology, product development and licensing agreements

In the field of RNAi therapeutics, we have licensed our LNP delivery technology to Alnylam and Merck & Co., Inc., and Alnylam has provided royalty bearing access to our LNP delivery technology to some of its partners. In addition, we have ongoing research relationships with Bristol-Myers Squibb Company, the United States National Cancer Institute, the DoD's JPM-MCS program, Monsanto, and other undisclosed pharmaceutical and biotechnology companies. Outside the field of RNAi, we have a legacy licensing agreement with Spectrum Pharmaceuticals Inc. We have rights under the RNAi intellectual property of Alnylam to develop thirteen RNAi therapeutic products. In addition, we have a broad non-exclusive license to use Unlocked Nucleobase Analogs (UNAs) from Arcturus Therapeutics, Inc. for the development of RNAi therapeutic products directed to any target in any therapeutic indication.



Strategic Alliances

Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics Inc.

Alnylam has a license to use our intellectual property to develop and commercialize products and may only grant access to our LNP technology to its partners if it is part of a product sublicense. Alnylam's license rights are limited to patents that we filed, or that claim priority to a patent that was filed, before April 15, 2010. Alnylam does not have rights to our patents filed after April 15, 2010 unless they claim priority to a patent filed before that date. Alnylam will pay us low single digit royalties as Alnylam's LNP-enabled products are commercialized. Alnylam currently has three LNP-based products in clinical development: ALN-TTR02 (patisiran), ALN-VSP, and ALN-PCS02. In December 2013, we received a $5 million milestone from Alnylam, triggered by the initiation of the APOLLO Phase III trial of patisiran. We have entered an arbitration proceeding with Alnylam, as provided for under our licensing agreement, to resolve a matter related to a disputed $5 million milestone payment to Tekmira from Alnylam related to its ALN-VSP product. We have not recorded any revenue in respect of this milestone. 20 -------------------------------------------------------------------------------- In April 2014, Alnylam presented positive new data from its Phase II clinical trial with patisiran (ALN-TTR02), an RNAi therapeutic targeting transthyretin (TTR) for the treatment of TTR-mediated amyloidosis (ATTR), which is enabled by our LNP technology. The program represents the most clinically advanced application of our proprietary LNP delivery technology. These results provide support for Alnylam's Phase III APOLLO trial where patisiran is being evaluated for its potential efficacy and safety in ATTR patients with Familial Amyloidotic Polyneuropathy (FAP). Alnylam has disclosed that it continues to enroll patients in its APOLLO Phase III trial, with over 20 sites in 9 countries now open and active. The Phase III trial is intended to demonstrate the efficacy and safety of patisiran in support of marketing authorization in countries around the world. Our licensing agreement with Alnylam grants us intellectual property rights for the development and commercialization of RNAi therapeutics for specified targets. In consideration for these three exclusive and ten non-exclusive licenses, we have agreed to pay single-digit royalties to Alnylam on product sales, with milestone obligations of up to $8.5 million on the non-exclusive licenses and no milestone obligations on the three exclusive licenses. In December 2013, we finalized and entered a cross-license agreement with Acuitas Therapeutics Inc. (formerly AlCana Technologies, Inc.). The terms of the cross-license agreement provide Acuitas with access to certain of Tekmira's earlier IP generated prior to April 2010 and provide us with certain access to Acuitas' technology and licenses in the RNAi field, along with a percentage of each milestone and royalty payment with respect to certain products, and Acuitas has agreed that it will not compete in the RNAi field for a period of 5 years.



Spectrum Pharmaceuticals, Inc.

In September 2013, we announced that our licensee, Spectrum Pharmaceuticals, Inc. had launched MarqiboŽ through its existing hematology sales force in the United States and has shipped the first commercial orders. We are entitled to mid-single digit royalty payments based on Marqibo's commercial sales. Marqibo, which is a novel, sphingomyelin/cholesterol liposome-encapsulated formulation of the FDA-approved anticancer drug vincristine originally developed by Tekmira, was licensed from Tekmira to Talon Therapeutics in 2006. In July 2013, Talon was acquired by Spectrum Pharmaceuticals, Inc. Marqibo's approved indication is for the treatment of adult patients with Philadelphia chromosome-negative acute lymphoblastic leukemia (Ph-ALL) in second or greater relapse or whose disease has progressed following two or more lines of anti-leukemia therapy. Spectrum has two ongoing Phase III trials evaluating Marqibo in additional indications.



Monsanto Company

In January 2014, we signed an Option Agreement and a Service Agreement with Monsanto, pursuant to which Monsanto has an option to obtain a license to use our proprietary delivery technology. Over the option period, which is expected to be approximately four years, we will provide lipid formulations for Monsanto's research and development activities, and Monsanto will make certain payments to the Company to maintain its option rights. Under the Service Agreement, we will make payments to Monsanto for research services over the option period, up to a maximum of $5.0 million. The transaction supports the application of our proprietary delivery technology and related IP for use in agriculture. The potential value of the transaction could reach up to $86.2 million following the successful completion of milestones. In January 2014, we received $14.5 million of the net $16.5 million in anticipated near term payments, and in July 2014, we received an additional $1.5 million payment following completion of specified program developments.



Marina Biotech, Inc. / Arcturus Therapeutics, Inc.

On November 29, 2012, we disclosed that we had obtained a worldwide, non-exclusive license to a novel RNAi trigger technology called Unlocked Nucleobase Analog (UNA) from Marina for the development of RNAi therapeutics. UNAs can be incorporated into RNAi drugs and have the potential to improve them by increasing their stability and reducing off-target effects. In August 2013, Marina assigned its UNA technology to Arcturus Therapeutics, Inc., and the UNA license agreement between Tekmira and Marina was assigned to Arcturus. The terms of the license are otherwise unchanged.



To date we have paid Arcturus $0.5 million in license fees and there are milestones of up to $3.2 million plus royalties for each product that we develop using UNA technology.

Bristol-Myers Squibb Company (BMS)

In May 2010 we announced the expansion of our ongoing research collaboration with BMS. Under the new agreement, BMS will use RNAi triggers molecules formulated by us in LNPs to silence target genes of interest. BMS will conduct the preclinical work to validate the function of certain genes and share the data with us. We can use the preclinical data to develop RNAi therapeutic drugs against the therapeutic targets of interest. BMS paid us $3.0 million concurrent with the signing of the agreement. We are required to provide a predetermined number of LNP batches over the four-year agreement. BMS will have a first right to negotiate a licensing agreement on certain RNAi products developed by us that evolve from BMS validated gene targets. In May 2011, we announced a further expansion of the collaboration to include broader applications of our LNP technology and additional target validation work. In December 2013, we decided to extend the BMS batch formulation agreement end date from May 2014 to December 2014. Extending the agreement will give BMS more time to order LNP batches. There will not be any monetary consideration for extending the agreement. Recognition of revenue from agreements with BMS is covered in the Revenue section of this MD&A. 21 --------------------------------------------------------------------------------



U.S. National Institutes of Health (NIH)

On October 13, 2010 we announced that together with collaborators at The University of Texas Medical Branch (UTMB), we were awarded a new NIH grant to support research to develop RNAi therapeutics to treat Ebola and Marburg hemorrhagic fever viral infections using our LNP delivery technology. The grant, worth $2.4 million, is supporting work at Tekmira and at UTMB. In February 2014, UTMB and Tekmira, along with other collaborators, were awarded additional funding from the NIH in support of this research.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Financial Instrument Valuation / The valuation of the financial instrument, which is Monsanto's option to acquire either the shares or assets of Protiva Agricultural Development Company Inc. This is a critical accounting estimate due to the potential value of the liability and the many assumptions we must make to calculate the fair value of the liability. We classify the financial instrument in our consolidated balance sheet as a liability and revalue it at each balance sheet date. Any change in the valuation is recorded in our statement of operations. We use a discounted cash flow model to value the financial instrument. Determining the appropriate fair-value model and calculating the fair value of the financial instrument requires considerable judgment, and changes in assumptions used may cause a relatively large change in the estimated valuation. The initial valuation of the financial instrument was determined to be nil. No change in the fair value of the financial instrument was recorded as at June 30, 2014. Stock-based compensation / The stock-based compensation that we recorded is a critical accounting estimate due to the value of the compensation recorded, the volume of our stock option activity, and the many assumptions that are required to be made to calculate the compensation expense. Compensation expense is recorded for stock-options issued to employees and directors using the fair value method. We must calculate the fair value of the stock options issued and amortize the fair value to stock compensation expense over the vesting period, and adjust the expense for stock option forfeitures and cancellations. We use the Black-Scholes model to calculate the fair value of stock options issued which requires that certain assumptions, including the expected life of the option and expected volatility of the stock, to be estimated at the time that the options are issued. Prior to Q2 2014, for the purpose of calculating the fair value, the expected life of stock options granted was eight years for employees, and ten years for directors and executives. Based on the pattern of increasing exercises of stock options, we have reduced the expected life to five years for employees, and eight years for directors and executives for stock options granted after March 31, 2014. The expected life and fair values of stock-options granted prior to this date remain unchanged. The reduction in expected life has the effect of reducing the fair value of stock-options granted. The impact on the fair value of stock options due to the reduction in expected life is relatively minor. For the three month period ended June 30, 2014, we recorded stock-based compensation expense of $1,081,000 as compared to stock-based compensation expense of $1,188,000 for this period if we had used the previous expected life assumptions of eight and ten years for employees and directors and executives, respectively.



There are no other changes to our critical accounting policies and estimates from those disclosed in our annual MD&A contained in our 2013 Annual Report filed on Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. In July 2013, the FASB issued ASU 2013-11, Income Taxes (ASC 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists (Update). The update is intended to eliminate the diversity in practice of the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update is effective for annual and interim financial statements for fiscal years beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this guidance did not have a material impact on our consolidated financial statements. In March 2014, the FASB issued ASU 2014-06, Technical Corrections and Improvements Related to Glossary Terms (Update). The update contains amendments that affect a wide variety of Topics in the Codification, and represent changes to clarify the Master Glossary of the Codification. The update does not have transition guidance and is effective upon issuance. The adoption of this guidance did not have an impact on our consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606). The stndard is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS by creating a new Topic 606, Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts. The core principle of the accounting standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those good or services. The amendments should be applied by either (1) retrospectively to each prior reporting period presented; or (2) retrospectively with the cumulative effect of initially applying this Update recognized at the date of initial application. The update is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2016, which for the Company means January 1, 2017. Early application is not permitted. The Extent of the impact of adoption has not yet been determined. 22

-------------------------------------------------------------------------------- In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (ASC 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The update is intended to resolve diverse accounting treatment of share-based payments that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. The update is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2015, which for the Company means January 1, 2016. The amendments should be applied either (1) prospectively to all share-based payment awards that are granted or modified on or after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Earlier application is permitted. We currently do not have any unvested performance-based options and do not expect to issue any in the future so the adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.



SUMMARY OF QUARTERLY RESULTS

The following table presents our unaudited quarterly results of operations for each of our last eight quarters. These data have been derived from our unaudited condensed consolidated financial statements, which were prepared on the same basis as our annual audited financial statements and, in our opinion, include all adjustments necessary, consisting solely of normal recurring adjustments, for the fair presentation of such information.



(in thousands $ except per share data) - unaudited

Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 2014 2014 2013 2013 2013 2013 2012 2012 Revenue Collaborations and contracts: DoD $ 861$ 3,240$ 2,620$ 2,833$ 2,453$ 1,900$ 3,622$ 1,881 Monsanto 283 243 - - - - - - Other - 206 (133 ) 128 391 232 185 187 1,144 3,689 2,487 2,961 2,844 2,132 3,807 2,068 Monsanto licensing fees and milestone payments 626 545 - - - - - - Alnylam milestone payments - - 5,000 - - - - - Acuitas milestone payments - 150 - - - - - - Spectrum milestone and royalty payments 41 46 40 2 - - - 1,000 Total revenue 1,811 4,430 7,527



2,963 2,844 2,132 3,807 3,068 Expenses

(11,234 ) (10,388 ) (9,962 )



(6,615 ) (5,915 ) (5,126 ) (9,816 ) (4,824 ) Other income (losses)

3,342 (12,026 ) (162 )



(2,254 ) 57 448 44,195 (1,702 ) Net (loss) income

(6,081 ) (17,984 ) (2,597 )



(5,906 ) (3,014 ) (2,546 ) 38,186 (3,458 ) Basic net (loss) income per share

$ (0.28 )$ (0.91 )$ (0.15 )$ (0.41 )$ (0.21 )$ (0.17)$ 2.72$ (0.25 ) Diluted net (loss) income per share $ (0.28 )$ (0.91 )$ (0.15 )$ (0.41 )$ (0.21 )$ (0.17)$ 2.51$ (0.25 ) Quarterly Trends Revenue / Our revenue is derived from research and development collaborations and contracts, licensing fees, milestone and royalty payments. Over the past two years, our principal source of ongoing revenue has been our contract with the DoD to advance TKM-Ebola which began in July 2010. We expect revenue to continue to fluctuate particularly due to the development stage of the TKM-Ebola contract and the irregular nature of licensing payments and milestone receipts. 23 -------------------------------------------------------------------------------- In Q3 2010, we signed a contract with the DoD to develop TKM-Ebola and have since incurred significant program costs related to equipment, materials and preclinical and clinical studies. These costs are included in our research, development, collaborations and contracts expenses. These costs are fully reimbursed by the DoD and this reimbursement amount is recorded as revenue. DoD revenue from the TKM-Ebola program also compensates us for labor and overhead and provides an incentive fee. In Q3 2012, the DoD issued a temporary stop-work order, which was subsequently lifted in Q4 2012 and the contract resumed. Revenue in Q4 2012 was unusually high due to an increase in our overhead rates. As described in our critical accounting policies, we estimate the labor and overhead rates to be charged under our TKM-Ebola contract and update these rate estimates throughout the year. In Q4 2012, we incurred unforecasted expenses which led to an increase in our TKM-Ebola contract overhead rates and, therefore, an increase in our revenue under the contract. Q1 2013 DoD revenue was lower as certain activities were still building momentum following the stop-work order. TKM-Ebola contract revenue increased in Q2, Q3 and Q4 2013 as technology transfer, manufacturing and non-clinical studies were all ongoing. On April 22, 2014, we signed a contract modification to increase the phase one targeted funding by $2.1 million to $43.8 million. The additional funding is to compensate us for unrecovered costs related to the temporary stop-work period that occurred in 2012 and to provide additional overhead funding should it be required. In Q1 2014, we earned $3.2 million in DoD revenue, due partially to an increase in activity as we move into Phase I Clinical Trial and animal testing. Also, as a result of the contract modification, we now expect to complete the initial phase of the contract close to budget which increases our estimate of total incentive fee to be earned under the contract and the amount we have earned to date. In Q2 2014, we recorded $0.9 million in DoD revenue.. In July 2014, we received notice from the U.S. Food and Drug Administration (FDA) that the TKM-Ebola Phase I healthy volunteer clinical study has been placed on clinical hold. In August 2014, we received written notice from the FDA modifying the clinical hold to a "partial clinical hold," allowing for the potential use of TKM-Ebola in individuals who have a confirmed or suspected Ebola infection. The program remains on clinical hold as it relates to the multiple-ascending dose portion of the Phase I clinical study in healthy volunteers with TKM-Ebola. We expect this matter to be resolved by Q4 2014.



In Q4 2013, we earned a $5.0 million milestone from Alnylam following their initiation of a Phase III trial enabled by our LNP technology.

In Q3 2012, we earned a $1.0 million milestone from Spectrum when they received accelerated approval for Marqibo from the U.S. Food and Drug Administration (FDA). In Q4 2013, we earned our first meaningful royalty payment from Spectrum, $0.04 million, as they shipped commercial orders of Marqibo. In Q4 2013, we decided to extend the BMS batch formulation agreement end date from May 2014 to December 2014. Extending the agreement will give BMS more time to order LNP batches. There will not be any monetary consideration for extending the agreement. Revenue recognized in 2013 has been reduced and the balance of deferred revenue as at December 31, 2013 has been increased to account for BMS, potentially, ordering more batches under the agreement. This adjustment is reflected in the $0.1 million of negative "other revenue" in Q4 2013 when the decision was made to extend the agreement and a cumulative revenue adjustment was recorded. In Q1 2014, we signed an Option Agreement and a Services Agreement with Monsanto for the use of our proprietary delivery technology and related intellectual property in agriculture. Over the option period, which is expected to be approximately four years, Monsanto will make payments to us to maintain their option rights. In Q1 2014, we received $14.5 million of the $16.5 million near term payments of which $4.5 million relates to research services and $10.0 million for the use of our technology. The payments are being recognized on a straight-line basis over the option period. On June 30, 2014, we received a $1.5 million payment following the completion of specified program developments. This payment will be recognized as revenue on a straight-line basis over the option period.



Expenses / Expenses consist primarily of clinical and pre-clinical trial expenses, personnel expenses, consulting and third party expenses, reimbursable collaboration expenses, consumables and materials, patent filing expenses, facilities, stock-based compensation and general corporate costs.

Q3 2012, expenses were unusually low due in part to the TKM-Ebola contract stop-work order as discussed above. Our Q4 2012 expenses were unusually high as we paid staff bonuses and recorded $2.5 million in license fee charges related to Acuitas, Arcturus and other parties - see the Overview section of this discussion.



From Q4 2013 to Q2 2014, our expenses increased due to an increase in our research and development activities as we seek to move more products into the clinic.

Other income (losses) / Other income in Q4 2012 consists primarily of $65.0 million received under the new Alnylam license agreement net of related contingent legal fees of $18.7 million paid to our lead litigation counsel. Q3 2013 includes a loss for the $2.5 million increase in the fair value of our warrant liability. This is largely attributable to the increase in our share price as compared to when the warrants were last valued at the end of Q2 2013. Other losses in Q1 2014 consist primarily of a $13.6 million increase in the fair value of warrant liability due to the significant increase in our share price. Other income in Q2 2014 consists largely of a $5.8 million reduction in the fair value of our warrant liability as a result of a decrease in our share price and a $2.7 million foreign exchange loss as discussed further below. Net (loss) income / The increase in loss in Q3 2012, Q3 2013, and Q1 2014 is largely due to increases in the fair value of our warrant liability which is caused by increases in our share price over the previous quarter ends. The net income in Q4 2012 is largely due to the litigation settlement payments received from Alnylam, and the decrease in loss in Q4 2013 is largely due to the milestone payment we received from Alnylam.



RESULTS OF OPERATIONS

The following summarizes the results of our operations for the periods shown, in thousands:

24 --------------------------------------------------------------------------------

Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Total revenue $ 1,811$ 2,844$ 6,241$ 4,975 Operating expenses 11,234 5,915 21,622 11,040 Loss from operations (9,423 ) (3,071 ) (15,381 ) (6,065 ) Net loss $ (6,081 )$ (3,014 )$ (24,065 )$ (5,561 )



Basic and diluted loss per share (0.28 ) (0.21 ) (1.15 ) (0.39 )

Revenue / Revenue is summarized in the following table, in thousands:

Three months ended June 30, 2014 % of Total 2013 % of Total DoD $ 861 47 % $ 2,453 86 % Monsanto 283 16 % - 0 % BMS - 0 % 323 11 % Other RNAi collaborations - 0 % 68 2 % Total collaborations and contracts revenue 1,144 63 % 2,844 100 % Monsanto licensing fee and milestone payments 626 35 % - 0 % Acuitas milestone payment - 0 % - 0 % Spectrum milestone and royalty payments 41 2 % - 0 % Total revenue $ 1,811$ 2,844 Six months ended June 30, 2014 % of Total 2013 % of Total DoD $ 4,101 66 % $ 4,353 87 % Monsanto 526 9 % - 0 % BMS 206 3 % 554 11 % Other RNAi collaborators - 0 % 68 1 % Total collaborations and contracts revenue 4,833 78 % 4,975 100 % Monsanto licensing fee and milestone payments 1,171 19 % - 0 % Acuitas milestone payment 150 2 % - 0 % Spectrum milestone and royalty payments 87 1 % - 0 % Total revenue $ 6,241$ 4,975 DoD revenue On July 14, 2010, we signed a contract with the United States Government Department of Defense ("DoD") to advance an RNAi therapeutic utilizing our LNP technology to treat Ebola virus infection (see Overview for further discussion). The initial phase of the contract, which is funded under a Transformational Medical Technologies program, was budgeted at $34.7 million. This stage one funding is for the development of TKM-Ebola including completion of preclinical development, filing an IND application with the FDA and completing a Phase 1 human safety clinical trial. In November 2012, we submitted a modification request to the existing contract to the U.S. Government in order to integrate recent advancements in LNP formulation and manufacturing technology in the TKM-Ebola development program. The modification was approved and increased the stage one targeted funding from $34.8 million to $41.7 million. In April 2014, we signed a contract modification with the DoD to increase the stage one targeted funding by a further $2.1 million to $43.8 million. The additional funding is to compensate us for unrecovered costs incurred in 2012 and to provide additional funding should it be required. Under the contract, we are being reimbursed for costs incurred, including an allocation of overheads, and we are being paid an incentive fee. DoD revenues and related contract expenses were lower in Q2 2014, as compared to Q2 2013, due to a decrease in activity. In July 2014, we received notice from the FDA that our TKM-Ebola clinical study has been placed on clinical hold. In August 2014, we received written notice from the FDA modifying the clinical hold to a "partial clinical hold," allowing for the potential use of TKM-Ebola in individuals who have a confirmed or suspected Ebola infection. The program remains on clinical hold as it relates to the multiple-ascending dose portion of the Phase I clinical study in healthy volunteers with TKM-Ebola. We expect this matter to be resolved by Q4 2014. 25 --------------------------------------------------------------------------------



Monsanto revenue

On January 13, 2014, we signed an Option Agreement and a Services Agreement (together, the "Agreements") with Monsanto. Under the Agreements, Monsanto has an option to acquire a license to use our proprietary delivery technology and related intellectual property for use in agriculture. Over the option period, which is expected to be approximately four years, we will provide lipid formulations for Monsanto's research and development activities, and Monsanto will make certain payments to us to maintain their option rights (see Overview for further discussion). In January 2014, we received $14.5 million, of which $4.5 million relates to research services and $10.0 million for the use of our technology. We are recognizing this revenue on a straight-line basis over the option period, which is expected to be four years. In Q2 2014, we received a $1.5 million payment following the completion of specified program developments. We recorded an aggregate of $1.7 million in revenue for the use of our technology and for research activities.



Alnylam revenue

On November 122012, the Company entered into a new licensing agreement with Alnylam that replaces all earlier licensing, cross-licensing, collaboration, and manufacturing agreements. The Company also entered into a separate cross license agreement with Acuitas which includes milestone and royalty payments and Acuitas has agreed not to compete in the RNAi field for five years.



In Q1 2014, we recognized $0.15 million in milestone revenue from Acuitas following their receipt of a milestone from Alnylam with the initiation of a Phase III trial enabled by our LNP technology.

BMS revenue

In May 2010, we signed a formulation agreement with BMS under which BMS paid us $3.0 million to make a certain number of LNP formulations over the following four year period. At the end of 2013, we decided to extend the agreement's end date from May 10, 2014 to December 31, 2014. Extending the agreement will give BMS more time to order LNP batches. We did not receive any monetary consideration for extending the agreement.



Spectrum revenue

Spectrum began making sales of Marqibo in September 2013. We are earning royalties on sales of Marqibo which uses a license to our technology.

Expenses / Expenses are summarized in the following table, in thousands:

Three



months ended June 30,

2014 % of



Total 2013 % of Total

Research, development, collaborations and contracts $ 9,298 83 % $ 4,914 83 % General and administrative 1,787 16 % 849 14 % Depreciation 149 1 % 152 3 % Total operating expenses $ 11,234$ 5,195 Six months ended June 30, 2014 % of



Total 2013 % of Total

Research, development, collaborations and contracts $ 17,502 81 % $ 8,981 81 % General and administrative 3,837 18 % 1,741 16 % Depreciation 283 1 % 318 3 % Total operating expenses $ 21,622$ 11,040



Research, development, collaborations and contracts

Research, development, collaborations and contracts expenses consist primarily of clinical and pre-clinical trial expenses, personnel expenses, consulting and third party expenses, consumables and materials, as well as a portion of stock-based compensation and general corporate costs. In the first half of 2014, we increased our spending on our newer product candidates, TKM-HBV and TKM-ALDH2 - see Overview. In Q2 2014, we incurred incremental costs for our TKM-HBV program as we are preparing to file an IND (or equivalent) in the second half of 2014. Spending on our PLK1 program also increased in Q2 2014, as compared to Q2 2013, as we expanded the number of clinical trial sites for the ongoing trial to achieve an acceleration in patient accrual and incurred set up costs for our HCC trial. In addition, we increased research activities related to our collaboration with Monsanto in the agricultural field. 26 -------------------------------------------------------------------------------- R&D compensation expense increased in Q2 and in the first half of 2014 as compared to Q2 and in the first half of 2013 due to an increase in the number of both employees and contractors in support of our expanded portfolio of product candidates. In addition, our R&D stock-based compensation increased significantly due largely to the increase in our share price. A significant portion of our research, development, collaborations and contracts expenses are not tracked by project as they benefit multiple projects or our technology platform and because our most-advanced programs are not yet in late-stage clinical development. However, our collaboration agreements contain cost-sharing arrangements pursuant to which certain costs incurred under the project are reimbursed. Costs reimbursed under collaborations typically include certain direct external costs and hourly or full-time equivalent labor rates for the actual time worked on the project. In addition, we have been reimbursed under government contracts for certain allowable costs including direct internal and external costs. As a result, although a significant portion of our research, development, collaborations and contracts expenses are not tracked on a project-by-project basis, we do, however, track direct external costs attributable to, and the actual time our employees worked on, our collaborations and government contracts. General and administrative General and administrative expenses were higher in Q2 and in the first half of 2014 compared to Q2 and in the first half of 2013 due largely to an increase in compensation expense linked to our increase in employee base and a significant increase in stock-based compensation due largely to the increase in our share price.



Depreciation of property and equipment

Most of our recent property and equipment additions were related to our TKM-Ebola program and are not recorded as Company assets. As such, a large portion of our property and equipment is reaching full amortization.

Other income (losses) / Other income (losses) are summarized in the following table, in thousands: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Interest income $ 257$ 146$ 404$ 290 Foreign exchange gains (losses) (2,728 ) (61 ) (1,285 ) (65 ) (Increase) decrease in fair value of warrant liability 5,813 (28 ) (7,803 ) 280 Total other income (losses) $ 3,342$ 57$ (8,684 )$ 504 Foreign exchange gains For the three months ended June 30, 2014 and in the first half of 2014, we recorded foreign exchange losses of $2.7 million and $1.3 million respectively, which are primarily unrealized losses related to a depreciation in the value of our U.S. dollar funds when converted to our functional currency of Canadian dollars. Our policy is to maintain U.S. and Canadian dollar cash and investment balances based on our forecast of currency needs over the long term thereby creating a natural currency hedge. Holding non-functional currency balances, such as US dollars, will continue to result in the recording of unrealized foreign exchange gains and losses.



Increase in fair value of warrant liability

In conjunction with equity and debt financing transactions in 2011 and an equity private placement that closed on February 29, 2012, we issued warrants to purchase our common share. We are accounting for the warrants under the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company's own stock, on the understanding that in compliance with applicable securities laws, the registered warrants require the issuance of registered securities upon exercise and do not sufficiently preclude an implied right to net cash settlement. At each balance sheet date the warrants are revalued using the Black-Scholes model and the change in value is recorded in the consolidated statement of operations and comprehensive income (loss).



Generally, a decrease in our share price from the previous reporting date results in a decrease in the fair value of our warrant liability and vice versa.

We expect to see future changes in the fair value of our warrant liability and these changes will largely depend on the change in the Company's share price, any change in our assumed rate of share price volatility, our assumptions for the expected lives of the warrants and warrant issuances or exercises. 27 --------------------------------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our cash flow activities for the periods indicated, in thousands: Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Net income (loss) for the period $ (6,081 )$ (3,014 )$ (24,065 )$ (5,560 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities (3,192 ) 295 11,687 290 Changes in operating assets and liabilities 1,263 (75 ) 13,523 (364 ) Net cash provided by (used in) operating activities (8,010 ) (2,794 ) 1,145 (5,634 ) Net cash used in investing activities (43,238 ) (210 ) (43,573 ) (411 ) Net cash provided by financing activities 234 68 59,523 206 Effect of foreign exchange rate changes on cash & cash equivalents 1,924 (1,454 ) (545) (2,453 ) Net increase (decrease) in cash and cash equivalents (49,090 ) (4,390 ) 16,550 (8,292 ) Cash and cash equivalents, beginning of period 134,357 43,122 68,717 47,024 Cash and cash equivalents, end of period 85,267 38,732



85,267 38,732

Since our incorporation, we have financed our operations through the sales of shares, units, debt, revenues from research and development collaborations and licenses with corporate partners, interest income on funds available for investment, and government contracts, grants and tax credits.



At June 30, 2014, we had cash and cash equivalents of $85.3 million and investments of $44.2 million as compared to cash and cash equivalents of $68.7 million at December 31, 2013.

For the six months ended June 30, 2014, operating activities provided $1.0 million in cash as compared to $5.6 million of cash used for the six months ended June 30, 2013. The increase in cash from operating activities is primarily related to cash received from Monsanto in 2014. Non-cash items to reconcile net loss to net cashed used or provided by operating activities primarily consist of unrealized foreign exchange gains and losses and change in fair value of warrant liability.



Financing activities used $44.8 million for the six months ended June 30, 2014 was largely due to guaranteed investment certificates acquired in April 2014.

On March 18, 2014, we completed an underwritten public offering of 2,125,000 common shares, at a price of $28.50 per share, representing gross proceeds of $60.6 million. The cost of financing, including commissions and professional fees, was $4.1 million, which gave us net proceeds of $56.5 million. For the six months ended June 30, 2014, we also received $3.0 million in finance funding from the exercise of warrants and options. We plan to use these proceeds to develop and advance product candidates through clinical trials, as well as for working capital and general corporate purposes. Cash requirements / At December 31, 2013 we held $68.7 million in cash and cash equivalents. On March 18, 2014, we raised net proceeds of $56.5 million from a public offering. Our cash and cash equivalents and investments balance as at June 30, 2014 was $129.5 million. We believe we have sufficient cash resources for at least the next 12 months. In the future, substantial additional funds will be required to continue with the active development of our pipeline products and technologies. In particular, our funding needs may vary depending on a number of factors including: ˇ revenues earned from our Agreements with Monsanto; ˇ revenues earned from our DoD contract to develop TKM-Ebola; ˇ revenues earned from our collaborative partnerships and licensing agreements, including milestone payments from Alnylam and royalties from Spectrum's sales of Marqibo; ˇ the extent to which we continue the development of our product candidates, add new product candidates to our pipeline, or form collaborative relationships to advance our products; ˇ our decisions to in-license or acquire additional products or technology for development, in particular for our RNAi therapeutics programs; ˇ our ability to attract and retain corporate partners, and their effectiveness in carrying out the development and ultimate commercialization of our product candidates; ˇ whether batches of drugs that we manufacture fail to meet specifications resulting in delays and investigational and remanufacturing costs; ˇ the decisions, and the timing of decisions, made by health regulatory agencies regarding our technology and products; ˇ competing technological and market developments; and ˇ prosecuting and enforcing our patent claims and other intellectual property rights. 28

-------------------------------------------------------------------------------- We will seek to obtain funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, collaborative arrangements with pharmaceutical companies and government grants and contracts. There can be no assurance that funding will be available at all or on acceptable terms to permit further development of our products. If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our research or development programs or reduce expenses associated with non-core activities. We may need to obtain funds through arrangements with collaborators or others that may require us to relinquish most or all of our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek if we were better funded. Insufficient financing may also mean failing to prosecute our patents or relinquishing rights to some of our technologies that we would otherwise develop or commercialize.



Material commitments for capital expenditures / As at the date of this discussion we do not have any material commitments for capital expenditure.

CONTRACTUAL OBLIGATIONS

On June 23, 2014, we signed an agreement to renew the lease for our Burnaby office and lab facility. The lease term is for five years, commencing August 1, 2014 with three additional renew terms of five years each. The following table summarizes our contractual obligations as at June 30, 2014: (in millions $) Payments Due by Period Less 1 - 3 4 - 5 After 5 Total than 1 year years years years Contractual Obligations Facility lease 5.9 1.0 3.6 1.3 - Technology license obligations (1) 0.5 0.5 - - - Total contractual obligations 6.4 1.5 3.6 1.3 -



1Relates to our expected fixed payment obligations under in-license agreements.

IMPACT OF INFLATION

Inflation has not had a material impact on our operations.

RELATED PARTY TRANSACTIONS

We have not entered into any related party transactions in the periods covered by this discussion.

OUTSTANDING SHARE DATA



At August 12, 2014, we had 22,105,977 common shares issued and outstanding, outstanding options to purchase an additional 1,926,675 common shares and outstanding warrants to purchase an additional 606,000 common shares.


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