ITEM 3.   KEY INFORMATION

SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data for each of the last five fiscal years derived from our Consolidated Financial Statements included in this annual report or previous annual reports under Item 17 and are prepared in accordance with Canadiangenerally accepted accounting principles (“CDN GAAP”).  These principles differ in certain respects from United States generally accepted accounting principles (“US GAAP”) and the table also summarizes the corresponding financial data in accordance with US GAAP.  The material differences between CDN GAAP and US GAAP that would affect the measurement of the Company’s financial results and position are set forth in Note 18 of our Consolidated Financial Statements included in this annual report.  This selected financial data should be read in conjunction with our Consolidated Financial Statements and the notes thereto. All currencies in the table are expressed in Canadian dollars.

6

6

(1)

Under US GAAP, acquired technology and technology licenses acquired during the year would be classified as in-process research and development and written off immediately as the technology has no other alternative uses.  Amortization and write-downs recorded for CDN GAAP on acquired technology and technology licenses classified as in-process research and development under US GAAP are reversed in the year.  For the purposes of reconciliation to US GAAP, this resulted in a reduced charge to operations in fiscal 2004 of $1,103,817 and an additional charge to operations in fiscal 2003 of $2,237,863.  This had no impact on the losses for fiscals 2002, 2001 or 2000.

(2)

Under US GAAP, stock based compensation to non-employees must be recorded at the fair market value of the options on the earlier of the date at which a performance commitment is reached or the vesting date of the options. Under CDN GAAP, this policy was adopted effective May 1, 2002 and applies to options granted by us on or after May 1, 2002.  For purposes of reconciliation to US GAAP, this results in additional compensation expense of approximately $5,000 (2003 - $50,000; 2002 - $44,000; 2001 - $62,000; 2000 - $30,000) in respect of options granted to consultants prior to May 1, 2002.

(3)

Under US GAAP, the excess, if any, of the fair value of the shares in escrow over the nominal amount paid would be recorded as compensation expense upon release from escrow.  For purposes of reconciliation to US GAAP, this resulted in an additional charge to operations in fiscal 2004 of $nil (2003 - $nil; 2002 - $nil; 2001 - $nil; 2000 - $1,627,197).

(4)

Loss per common share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year, excluding shares held in escrow or other contingently issuable common shares. Diluted loss per common share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Since the Company’s stock options, common shares to be issued, escrow shares, underwriter options, warrants and convertible preferred shares are anti-dilutive, diluted loss per common share is equivalent to loss per common share.

(5)

The loss per common share has been restated where necessary to reflect our adoption of the recommendations of the Canadian Institute of Chartered Accountants Section 3500 with respect to the calculation of loss per common share—refer to Note 3 to our consolidated financial statements for the financial year ended April 30, 2002 contained in “Item 17. Financial Statements” of our Fiscal 2002 20-F.

(6)

The preferred shares were issued in connection with the acquisitions of acquired technology and technology licenses which occurred during fiscals 2004 and 2003 – refer to Notes 8 and 13[b] to our consolidated financial statements for the year ended April 30, 2004 contained in “Item 17. Financial Statements”. See also “BioSource Pharm, Inc.”, “Intrabiotics Pharmaceuticals, Inc.”, “Hybridon, Inc.” and “Virogen Limited.” contained in “Item 4. Information on the Company – Business Overview - Technology Licenses and Research Collaborations”.

 In this Form 20-F, unless otherwise specified, all monetary amounts are expressed in Canadian dollars.  The following table sets out the exchange rate for the conversion of $1.00 Canadian into United States dollars (calculated based on the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York) in effect at the end of the five most recent financial years, the high and low exchange rates for such periods, and the average exchange rates based on the average of the exchange rates on the last day of each month in such periods:

7

Fiscal Year Ended April 30,

The following table sets out the high and low exchange rates for the conversion of $1.00 Canadian into United States dollars during the previous six months:

The noon rate of exchange on September 15, 2004 as reported by the United States Federal Reserve Bank of New York for cable transfers for the conversion of Canadian dollars into US dollars was $0.7699 (US $1.00 = Cdn $1.2988).

CAPITALIZATION AND INDEBTEDNESS

Not applicable.

REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

RISK FACTORS

When evaluating our business and product opportunities investors should carefully review and consider the following risk factors in addition to the other information contained in this Annual Report on Form 20-F.

We are at an Early Stage of Development and have no Commercial Products

Our business is at an early stage and we have not completed the development of any commercial products, and accordingly we have not begun to market or generate revenues from sales of the products we are developing.  Our sole focus from May 1995 to May 2002 was on the research and development of product candidates based on antimicrobial peptides.  As a result of these efforts, we have two product candidates in the clinical stage of development: MBI-226 for the prevention of catheter-related infections (phase III) and MBI-594AN for the treatment of acne (completed two phase II studies).  Since May 2002, we have acquired three product candidates in the clinical stage of development: MBI-3253 for the treatment of chronic Hepatitis C Virus infections (entering Phase II), MITO-4509 for the treatment of Alzheimer’s Disease (completed a Phase I study) and MBI-1121 for treatment of Human Papillomavirus (completed a phase I study) and several earlier stage development programs.  We will be required to commit substantial resources and to conduct time-consuming research, non-clinical studies and clinical trials in order to complete the development of our product candidates.

There can be no assurance that any of our product candidates will meet applicable health regulatory standards, obtain required regulatory approvals, be capable of being produced in commercial quantities at reasonable costs, be successfully marketed or that the investment made in such product candidates will be recouped through sales or related royalties.  Products that may result from our research and development programs are not expected to be commercially available for a number of years, if at all, and it will be a number of years, if ever, before we will receive revenues from commercial sales of such products.  There

8

can be no assurance that we will ever achieve profitability.  As a result, an investment in the common shares of MIGENIX involves a high degree of risk and should be considered only by those persons who can afford a total loss of their investment.

Our Success Depends on Collaborative Partners, Licensees and Other Third Parties over Whom we have Limited Control

The success of our business strategy is largely dependent on our ability to enter into and to effectively manage corporate collaborations.  Our collaborative efforts include entering into licensing arrangements, research collaborations and/or other technology development and commercialization commitments.  In August 2004, we entered into a Collaboration and License Agreement with Strata Pharmaceuticals, Inc. for the development and commercialization of MBI-226 in North America and Europe and previously we had a Collaboration and License Agreement with Fujisawa Healthcare, Inc. for the co-development and commercialization of MBI-226 in North America (see “Item 4. Information on the Company – Business Overview - Development and Commercialization Partnerships” and Item. 5. “Operating and Financial Review and Prospects – Clinical Development Programs – MBI-226: Prevention of Catheter-related Infections”). With the acquisition of MitoKor Inc. in August 2004 we acquired agreements with Wyeth and Pfizer (see “Item 4. Information on the Company – Business Overview - Development and Commercialization Partnerships”). In addition, we have many collaborative and/or license agreements (see “Item 4. Information on the Company – Business Overview -Technology Licenses and Research Collaborations”). On an ongoing basis we investigate in-licensing, acquisition and collaboration opportunities to expand and advance our product pipeline. There can be no assurance that such efforts will lead to the establishment of any corporate collaborations on favourable terms, or at all, or that if established, any such corporate collaborations will result in the successful development of our products or the generation of significant revenues.

Because we enter into research and development collaborations at various stages of research and product development, our success is dependent upon the performance of our corporate collaborators. The amount and timing of resources to be devoted to activities by corporate collaborators are not within our direct control, and there can be no assurance that any of our corporate collaborators will commit sufficient resources to our research and development programs or the commercialization of our products. Our corporate collaborators may not perform their obligations as expected. Our corporate collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us, or disputes may arise with respect to ownership of technology developed under any such corporate collaborations.

Because the success of our business is largely dependent upon our ability to enter into corporate collaborations and to effectively manage issues that arise from such collaborations, management of these relationships will require significant time and effort from our management team and effective allocation of our resources. We may not be able to simultaneously and effectively manage our corporate collaborations.

The results of Clinical Studies are Unpredictable and may cause us to abandon or delay development of our Drug Candidates

Normally two pivotal Phase III studies are required as part of a New Drug Application (“NDA”) to obtain marketing approval in the United States for a new drug; however, we received fast-track designation from the United States Food and Drug Administration (“FDA”) for MBI-226, our most advanced product, which could have permitted us to file a NDA in the first half of calendar 2004 based on one pivotal Phase III study.  Enrollment and treatment in a Phase III study of MBI-226 was completed in the first calendar quarter of 2003.  Preliminary top line results from the study received in July 2003 did not show statistically significant superiority of MBI-226 in preventing central venous catheter-related bloodstream infections compared with povidone iodine, thereby not achieving the primary endpoint of the study.  With the primary endpoint not being achieved Fujisawa who funded development of MBI-226 since May 2002, under the terms of a Collaboration and License Agreement terminated the agreement based on the results of the Phase III study.  We entered into a Collaboration and License Agreement with Strata Pharmaceuticals Inc. in

9

August 2004 under which Strata will fund the further development of MBI-226 including a further Phase III study.  The results of clinical studies are unpredictable and we may experience additional delays or may abandon drug candidates based on the results of the studies or the costs of obtaining FDA approval for our products.

Our Success Depends on Our Ability to Protect Our Proprietary Rights and Operate Without Infringing the Proprietary Rights of Others

Our success will depend in part on our ability and that of our corporate collaborators to obtain and enforce patents and maintain trade secrets, both in the United States and in other countries.  We have filed our own patent applications, acquired issued patents and patent applications and have licensed issued patents and patent applications from several parties.  As of September 16, 2004, we held rights to 106 patents or patent applications in the United States relating to our technology platforms and development programs, as well as foreign counterparts for most of these patents and patent applications.  See “Item 4. Information on the Company – Business Overview - Intellectual Property”.  There can be no assurance that we, our corporate collaborators or our licensors have or will develop or obtain rights to products or processes that are patentable, that patents will issue from any of the pending applications owned or licensed by us or our corporate collaborators, that any claims allowed will issue, or in the event of issuance, will be sufficient to protect the technology owned by or licensed to us or our corporate collaborators.  There can also be no assurance that our owned or licensed patents or future patent applications or any collaborators’ current patents, or patents that issue on future applications, will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages.  Patent applications in the United States are maintained in secrecy for 18 months or until patents issue, patent applications in certain foreign countries are not generally published until many months or years after they are filed, and the publication of technological developments in the scientific and patent literature often occurs long after the date of such developments.  Accordingly, we cannot be certain that we or our licensor was the first to invent the subject matter covered by any patent application or that we or our licensor were the first to file a patent application for any such invention.

Patent law relating to the scope and enforceability of claims in the fields in which we operate is still evolving.  The patent positions of biotechnology and biopharmaceutical companies, including us, is highly uncertain and involves complex legal and technical questions for which legal principles are not firmly established.  The degree of future protection for our proprietary rights, therefore, is highly uncertain.  In this regard there can be no assurance that patents will issue from any of the pending patent applications.  In addition, there may be issued patents and pending applications owned by others directed to technologies relevant to our or our corporate collaborators’ research, development and commercialization efforts.  There can be no assurance that our or our corporate collaborators’ technology can be developed and commercialized without a license to such patents or that such patent applications will not be granted priority over patent applications filed by us or one of our corporate collaborators.

Our commercial success depends significantly on our ability to operate without infringing the patents and proprietary rights of third parties, and there can be no assurance that our and our corporate collaborators’ technologies and products do not or will not infringe the patents or proprietary rights of others. We may be unable to determine the patents or patent applications that may materially affect our or our corporate collaborators’ ability to make, use or sell products.  The existence of third party patent applications and patents could significantly reduce the coverage of the patents owned by us or licensed to us or our corporate collaborators and limit our ability or our corporate collaborators’ ability to obtain meaningful patent protection.  If patents containing competitive or conflicting claims are issued to third parties, we or our corporate collaborators may be enjoined from pursuing research, development or commercialization of products or be required to obtain licenses to these patents or to develop or obtain alternative technology and products.  We or our collaborators may be so enjoined or unable to obtain licenses to the patents, technologies and products of third parties on acceptable terms, if at all, or unable to obtain or develop alternative technologies.

There can be no assurance that third parties will not independently develop similar or alternative

10

technologies to ours, duplicate any of our technologies or the technologies of our corporate collaborators or our licensors, or design around the patented technologies developed by us, our corporate collaborators or our licensors. The occurrence of any of these events would have a material adverse effect on our business, financial condition and results of operations.

Litigation may also be necessary to enforce patents issued or licensed to us or our corporate collaborators or to determine the scope and validity of a third party’s proprietary rights.  We could incur substantial costs if litigation is required to defend ourselves in patent suits brought by third parties, if we participate in patent suits brought against or initiated by our corporate collaborators or if we initiate such suits, and there can be no assurance that funds or resources would be available in the event of any such litigation. An adverse outcome in litigation or an interference to determine priority or other proceeding in a court or patent office could subject us to significant liabilities, require disputed rights to be licensed from other parties or require us or our corporate collaborators to cease using certain technology or products, any of which may have a material adverse effect on our business, financial condition and results of operations.

We also rely on trade secrets and proprietary know-how, especially in circumstances in which patent protection is not believed to be appropriate or obtainable. We attempt to protect our proprietary technology in part by confidentiality agreements with our employees, consultants, and advisors and collaborators.  There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by our competitors, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our Success Depends on the Management of Growth

Our future growth, if any, may cause a significant strain on management, operational, financial and other resources. We have acquired technologies through acquisitions of other entities, including MitoKor Inc in August 2004. Our ability to effectively manage growth will require us to implement and improve our scientific, operational, financial and management information systems and to expand the number of, and to train, manage and motivate, our employees.  These demands may require the addition of new management personnel and the development of additional expertise by management.  Any increase in resources devoted to research, product and business development without a corresponding increase in our scientific, operational, financial and management information systems could have a material adverse effect on our performance.  The failure of our management team to effectively manage growth could have a material adverse effect on our business, financial condition and results of operations.

We Have a History of Operating Losses with an Accumulated Deficit of $88.9 million at July 31, 2004

We have experienced significant operating losses in each year since our inception.  We incurred losses of $12.2 million in our fiscal year ended April 30, 2004, $12.3 million in our fiscal year ended April 30, 2003, and $19.9 million in our fiscal year ended April 30, 2002.  As of July 31, 2004, our accumulated deficit was approximately $88,927,000 (April 30, 2004: $85,789,102).  We expect to incur substantial additional losses over at least the next several years.  Our ability to achieve a consistent, profitable level of operations is dependent in large part upon entering into agreements with corporate collaborators for product research, development and commercialization on favourable terms, obtaining regulatory approvals for our products and the successful manufacture and marketing of our products.  We do not anticipate revenues from product sales in the next two years.  We anticipate that our sources of revenues for the next few years will consist of upfront license fees, milestone payments and research and development revenues pursuant to collaboration and licensing arrangements (See “Item 5. Operating and Financial Review and Prospects - Trend Information”) and interest income.  We cannot predict if these revenues, if any, will be sufficient to achieve profitability or that we will ever be profitable.

We must Obtain Additional Financing to Execute Our Business Plan

We will require substantial additional capital resources in order to conduct our operations.  We have financed our operations primarily through the sale of equity securities.  Through July 31, 2004, we have

11

raised approximately $106 million in net proceeds from equity issuances.  At July 31, 2004 our net working capital was $15.8 million (April 30, 2004: $19.1 million; April 30, 2003: $25.2 million).  We believe that our funds on hand at July 31, 2004, together with the up-front license fee and equity investment received in August 2004 from the license agreement with Strata (see “Item 5. Operating and Financial Review and Prospects – Clinical Development Programs – MBI-226: Prevention of Catheter-related Infections”), approximately $0.5 million in cash net of payables from the MitoKor acquisition (see “Item 5. Operating and Financial Review and Prospects – Building the Product Pipeline – Acquisition of MitoKor Inc.”), cost management efforts and expected interest income, should be sufficient to finance our operating and capital needs for approximately 18 to 21 months.  Our future capital requirements will depend on many factors, including, among others, the following: the amount of milestone based licensing payments, if any, from Strata, Spring Bank, Pfizer and Wyeth (see “Item 4. Information on the Company – Business Overview - Development and Commercialization Partnerships”); continued scientific progress in our research and development programs; the magnitude and scope of these activities; our ability to establish and maintain corporate collaborations and licensing arrangements including for our MBI-594AN acne drug candidate; progress with preclinical studies and clinical trials; the time and costs involved in obtaining regulatory approvals; the time and costs involved in scaling up the commercial manufacturing of our products; the amount of government and/or grant funding obtained; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; our strategy to develop, acquire or license new technologies and products and other factors not within our control.

We intend to seek such additional funding through corporate collaborations, public or private equity or debt financings, government funding programs and capital lease transactions; however, there can be no assurance that additional financing will be available on acceptable terms, if at all.  Additional equity financings could result in significant dilution to shareholders. If sufficient capital is not available, we may be required to delay, reduce the scope of, eliminate or divest one or more of our research or development programs, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our Success Depends on Our Ability to Attract and Retain Key Qualified Personnel

We are highly dependent on the principal members of our scientific and management staff, the loss of whose services might significantly delay or prevent the achievement of our scientific or business objectives.  Competition among biotechnology and biopharmaceutical companies for qualified employees is intense, and the ability to retain and attract qualified individuals is critical to our success. There can be no assurance that we will be able to attract and retain such individuals currently or in the future on acceptable terms, or at all, and the failure to do so would have a material adverse effect on our business, financial condition and results of operations. In addition, we do not maintain “key person” life insurance on any officer, employee or consultant. We also have relationships with scientific and medical collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and development strategy.  These collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, these collaborators may have arrangements with other companies to assist such companies in developing technologies that may prove competitive to our technologies.

Certain of our directors and officers may serve as directors or officers of other companies or have shareholdings in other companies which may lead to conflicts of interest that could be harmful to our interests.  In the event that a director and/or officer has a conflict he or she is required to advise us of his or her conflict, and abstain from participation in matters related to the conflict.

Our Industry Is Highly Competitive

The biotechnology and biopharmaceutical industries are intensely competitive.  Several biotechnology and biopharmaceutical companies, as well as certain research organizations, currently engage in or have in the past engaged in efforts related to the development of products competitive with our technologies and product candidates.

12

Many of the companies developing competing technologies and products have significantly greater financial resources and expertise in discovery, research and development, manufacturing, preclinical and clinical testing and obtaining regulatory approvals than we do.  Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours.  These companies and institutions compete with us in recruiting and retaining qualified scientific, medical and management personnel as well as in acquiring technologies complementary to our programs.  We will face competition with respect to product efficacy and safety, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price and patent position, including potentially dominant patent positions of others.  There can be no assurance that competitors will not develop more effective or more affordable products, or achieve earlier patent protection or product commercialization than us and our corporate collaborators, or that such competitive products will not render our products obsolete.

We may Encounter Difficulties in Manufacturing Our Products

There can be no assurance that our product candidates can be manufactured at a cost or in quantities necessary to make them commercially viable.  We do not have any manufacturing facilities and we are dependent on third party contract manufacturers and/or collaborators to produce our product candidates for preclinical studies, clinical trials and for product commercialization.  There can be no assurance that such third party manufacturers or collaborators will be able to meet our needs with respect to timing, quantity, quality or pricing.  If we are unable to contract for a sufficient supply of product on  acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers or collaborators, our preclinical, clinical testing and/or product sales would be delayed, thereby delaying the submission of products for regulatory approval and/or market introduction and subsequent sales of such products.

We have yet to Market or Sell any Pharmaceutical Products; Our Success Will Depend on Third Parties’ Marketing and Distribution Capabilities

We currently have no sales, marketing or distribution capability.  We intend to rely on our corporate collaborators to market our product candidates, if and when approved; however, there can be no assurance that such corporate collaborators have effective marketing, sales and distribution capabilities.  If we are unable to establish or maintain such relationships and we are required to market any of our products directly, we will have to develop a marketing and sales force with technical expertise and with supporting distribution capabilities.  There can be no assurance that we will be able to establish or maintain such relationships with third parties or develop in-house marketing, sales and distribution capabilities.

We may not be able to Obtain the Regulatory Approvals or Clearances Necessary to Commercialize Our Products

The preclinical testing and clinical trials of our product candidates and the manufacturing, labelling, sale, distribution, export or import, marketing, advertising and promotion of any new products are subject to regulation by federal, state and local governmental authorities in the United States, principally by the FDA, and by similar agencies in other countries.  Any product we or our corporate collaborators develop must receive all relevant regulatory approvals or clearances before it may be marketed and sold in a particular country.  The regulatory process, which includes extensive preclinical studies and clinical trials of each product in order to establish its safety and efficacy, is uncertain, can take many years and requires the expenditure of substantial resources. Data obtained from preclinical and clinical activities are susceptible to varying interpretations which could delay, limit or prevent regulatory approval or clearance.  In addition, delays or rejections may be encountered based upon changes in regulatory policy during the period of product development and/or the period of review of any application for regulatory approval or clearance for a product.  Delays in obtaining regulatory approvals or clearances would adversely affect the marketing of any products we or our corporate collaborators develop, impose significant additional costs on us and our

13

corporate collaborators, diminish any competitive advantages that we or our corporate collaborators may attain and adversely affect our ability to receive royalties and generate revenues and profits. There can be no assurance that, even after such time and expenditures, any required regulatory approvals or clearances will be obtained for any products developed by or in collaboration with us.

Regulatory approval, if granted, may entail limitations on the indicated uses for which the new product may be marketed that could limit the potential market for such product, and product approvals, once granted, may be withdrawn if problems occur after initial marketing.  Furthermore, manufacturers of approved products are subject to pervasive review, including compliance with detailed regulations governing Good Manufacturing Practices (“GMP”). Failure to comply with applicable regulatory requirements can result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution.

We are also subject to numerous federal, state, provincial and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing  practices, the experimental use of animals, the environment and the use and disposal of hazardous substances used in connection with our research and development work.  In addition, we cannot predict the extent of government regulations or the impact of new governmental regulations which might have an adverse effect on the development, production and marketing of our products, and there can be no assurance that we will not be required to incur significant costs to comply with current or future laws or regulations or that we will not be adversely affected by the cost of such compliance.

Our Products under Development Require Significant Testing and if we are not Successful we will be Unable to Commercialize such Products

We must demonstrate the safety and efficacy of our product candidates through extensive preclinical and human clinical testing. We may experience unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of our product candidates, including the following:

• safety and efficacy results attained in early human clinical trials may not be indicative of results that are obtained in later clinical trials;

• the results of preclinical studies may be inconclusive, or they may not be indicative of results that will be obtained in human clinical trials;

• after reviewing test results, we or our collaborators may abandon projects that previously were believed to be promising;

• we, or our collaborators or regulators, may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks;

• our potential products may not have the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use, if approved; and

• clinical testing is very expensive, can take many years, and the outcome is uncertain. The data collected from our clinical trials may not be sufficient to support approval by the regulatory authorities of our product candidates.

The clinical trials of our products under development may not be completed on schedule and the regulatory authorities may not ultimately approve any of our product candidates for commercial sale.  If we fail to adequately demonstrate the safety and efficacy of a product under development, this would delay or prevent regulatory approval of the product candidate, which could prevent us from achieving profitability.

Our Product Candidates Subject Us to the Risk of Product Liability Claims for Which we may not be able to Obtain Adequate Insurance Coverage

14

Inherent in the use of our product candidates in clinical trials, as well as in the manufacturing and distribution in the future of any approved products, is the risk of financial exposure to product liability claims in the event that the use of such products results in personal injury or death.  There can be no assurance that we will not experience losses due to product liability claims in the future.  There can be no assurance that our insurance coverage will be adequate or that future insurance coverage will be available in sufficient amounts or at an acceptable cost, or at all.  A product liability claim, product recall or other claim, as well as any claims for uninsured liabilities or in excess of insured liabilities, may have a material adverse effect on our business, financial condition and results of operations.

Even If We Obtain the Necessary Marketing Approvals, Our Products May Not Gain Market Acceptance

There can be no assurance that any products successfully developed by us or our corporate collaborators, if approved for marketing, will ever achieve market acceptance.  Our products, if successfully developed, may compete with a number of traditional drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies, as well as new products currently under development by them.  The degree of market acceptance of any products developed by us or our corporate collaborators will depend on a number of factors, including the establishment and demonstration of the clinical efficacy and safety of the product candidates, their potential advantage over alternative treatment methods and reimbursement policies of government and third-party payers. There can be no assurance that physicians, patients or the medical community in general will accept and utilize any products that may be developed by us or our corporate collaborators.

Sales of some Products Under Development Depend Upon the Availability of Reimbursement from Third Party Payers Who Are Increasingly Challenging Drug Prices and Examining the Cost Effectiveness of Medical Products and Services

Sales of some of our products will depend in part upon the availability of reimbursement from third party payers, including government health administration authorities, managed care providers, private health insurers and other organizations. These third party payers are increasingly attempting to contain costs by challenging the price of products and services and limiting the coverage and level of reimbursement for pharmaceutical products. Third party reimbursement for our products may be inadequate to enable us to maintain prices that provide a return on our product development investment. Governments continue to propose and pass legislation designed to reduce health care costs. This legislation could further limit reimbursement. If government and third party payers do not adequately reimburse patients for purchasing our products, there may not be a market for the products.

Our Share Price Has Been, and Is Likely to Continue To Be Highly Volatile

Stock market prices for biopharmaceutical companies are often very volatile. Our stock price on the Toronto Stock Exchange fluctuated from $0.45 (low) to $1.85 (high) during the fiscal year ended April 30, 2004, and from $0.76 (low) to $1.28 (high) during the period from May 1, 2004 through September 16, 2004.  Factors such as announcements by us or our competitors of technological innovations, new corporate partnerships or changes in the relationship of existing partnerships, new commercial products or patents, the development of proprietary rights by us or others, results of clinical studies, regulatory actions, publications and other factors could have a significant effect on the price of our common shares. When the market price of a company’s shares drops significantly, shareholders may initiate securities class action law suits against that company. A lawsuit of this nature against us could cause us to incur substantial costs, expose us to significant liability for damages, and could divert the time and attention of our management and other personnel.