FENCF 10-Q Quarterly Report March 31, 2010

FENNEC PHARMACEUTICALS INC.

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10-Q 1 v185135_10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____ to ____

Commission File Number: 001-32295

ADHEREX TECHNOLOGIES INC.

(Exact Name of Registrant as Specified in Its Charter)

Canada (State or Other Jurisdiction of Incorporation or Organization	20-0442384 (I.R.S. Employer Identification No.)

501 Eastowne Drive, Suite 140 Chapel Hill, North Carolina
(Address of Principal Executive Offices)	27514 (Zip Code)

Registrant's Telephone Number, Including Area Code: (919) 636-4530

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

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

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if smaller reporting company)	Smaller reporting company x

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

As of May 13, 2010, there were 368,293,451 shares of Adherex Technologies Inc. common stock outstanding.

TABLE OF CONTENTS

	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	3
Unaudited Condensed Consolidated Balance Sheets – March 31, 2010 and December 31, 2009	3
Unaudited Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2010 and 2009	4
Unaudited Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2010 and 2009	5
Unaudited Condensed Consolidated Statements of Stockholders' Equity – For the Period Ended September 3, 1996 to March 31, 2010	6
Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures about Market Risk	20
Item 4. Controls and Procedures	20
PART II: OTHER INFORMATION	21
Item 1A. Risk Factors	21
Item 6. Exhibits	22
Signatures	23

PART 1: FINANCIAL INFORMATION

Item 1. Financial Statements

Adherex Technologies Inc.

(a development stage company)

Unaudited Interim Consolidated Balance Sheets

(U.S. Dollars and shares in thousands, except per share amounts)

	March 31, 2010			December 31, 2009

Assets

Current assets:
Cash and cash equivalents	$	348		$	685
Cash pledged as collateral		-			-
Accounts receivable		43			69
Prepaid expense		75			75
Other current Assets		4			4
Total current assets		470			833

Capital assets		-			-
Leasehold inducements		-			-
Total assets	$	470		$	833

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	338		$	318
Accrued liabilities	$	53			70
Other current liabilities		32			32
Total current liabilities		423			420

Other long-term liabilities		7			7
Deferred lease inducement		-			-
Total liabilities		430			427

Commitments and contingencies

Stockholders' equity:
Common stock, no par value; unlimited shares authorized; 128,227 shares issued and outstanding		64,929			64,929
Additional paid-in capital		35,225			35,225
Deficit accumulated during development stage		(101,357	)		(100,991	)
Accumulated other comprehensive income		1,243			1,243
Total stockholders’ equity		40			406
Total liabilities and stockholders’ equity	$	470		$	833

(The accompanying notes are an integral part of these interim consolidated financial statements)

Adherex Technologies Inc.

(a development stage company)

Unaudited Condensed Consolidated Statements of Operations

(U.S. Dollars and shares in thousands, except per share amounts)

	Three Months Ended						Cumulative From September 3, 1996 to
	March 31, 2010			March 31, 2009			March 31, 2010

Revenue	$	-		$	-		$	-

Operating expenses:
Research and development		163			1,279			65,053
Impairment of Capital Assets								386
Gain on Deferred lease inducements								(497	)
Acquired in-process research and development		-			-			13,094
General and administrative		203			673			24,913
Total operating expenses		366			1,952			102,949

Loss from operations		(366	)		(1,952	)		(102,949	)

Other income (expense):
Settlement of Cadherin Biomedical Inc. litigation		-			-			(1,283	)
Interest expense		-			-			(19	)
Loss on impairment of assets held for sale		-			(340	)		255
Interest income		-			46			2,797
Total other income and expense, net		-			(294	)		1,252

Net loss and comprehensive loss	$	(366	)	$	(2,246	)	$	(101,199	)

Basic and diluted net loss per common share	$	(0.00	)	$	(0.02	)
Weighted-average common shares used in computing basic and diluted net loss per common share		128,227			128,227

(The accompanying notes are an integral part of these condensed consolidated financial statements)

Adherex Technologies Inc.

(a development stage company)

Unaudited Condensed Consolidated Statements of Cash Flows

(U.S. Dollars and shares in thousands, except per share amounts)

	Three Months Ended						Cumulative From September 3, 1996 to
	March 31, 2010			March 31, 2009			March 31, 2010

Cash flows from (used in):
Operating activities:
Net loss	$	(366	)	$	(2,246	)	$	(101,199	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		-			-			1,404
Non-cash Cadherin Biomedical Inc. litigation expense		-			-			1,187
Unrealized foreign exchange loss		-			-			9
Amortization of deferred lease inducements		0			(24	)		(412	)

Loss on impairment of capital assets		0			340			386
Non-cash severance expense		-			-			168
Stock options issued to consultants		-			5			722
Stock options issued to employees		-			296			7,703
Acquired in-process research and development		-			-			13,094
Changes in operating assets and liabilities		29			(673	)		(114	)
Net cash used in operating activities		(337	)		(2,302	)		(77,049	)

Investing activities:
Purchase of capital assets		-			-			(1,440	)
Disposal of capital assets		-			-			115
Release of restricted cash		-			-			190
Restricted cash		-			-			(209	)
Purchase of short-term investments		-			-			(22,148	)
Redemption of short-term investments		-			-			22,791
Investment in Cadherin Biomedical Inc.		-			-			(166	)
Acquired intellectual property rights		-			-			(640	)
Net cash used in investing activities		-			-			(1,507	)

Financing activities:
Conversion of long-term debt to equity		-			-			68
Long-term debt repayments		-			-			(65	)
Capital lease repayments		-			-			(8	)
Issuance of common stock, net of issue costs		-			-			76,687
Registration expense		-			-			(465	)
Financing expenses		-			-			(544	)
Proceeds from convertible note		-			-			3,017
Other liability repayments		-			-			(87	)
Security deposits		-			-			35
Proceeds from exercise of stock options		-			-			51
Net cash provided in financing activities		-			-			78,713
								368
Effect of exchange rate changes on cash and cash equivalents		-			-			-
Net change in cash and cash equivalents		(337	)		(2,302	)		-
Cash and cash equivalents - Beginning of period		685			5,349			-
Cash and cash equivalents - End of period	$	348		$	3,047		$	348

(The accompanying notes are an integral part of these interim consolidated financial statements)

Adherex Technologies Inc.

(a development stage company)

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(U.S. dollars and shares in thousands, except per share information)

	Common Stock					Non-redeemable Preferred Stock		Additional Paid-in			Accumulated Other Comprehensive		Deficit Accumulated During Development			Total Shareholders’
	Number			Amount		of Subsidiary		Capital			Income		Stage			Equity
Balance at June 30, 1996		-		$	-	$	-	$	-		$	-	$	-		$	-
Issuance of common stock		1,600			-		-		-			-		-			-
Net loss		-			-		-		-			-		(37	)		(37	)
Balance at June 30, 1997		1,600			-		-		-			-		(37	)		(37	)
Net loss		-			-		-		-			-		(398	)		(398	)
Balance at June 30, 1998		1,600			-		-		-			-		(435	)		(435	)
Exchange of Adherex Inc. shares for Adherex Technologies Inc. shares		(1,600	)		-		-		-			-		-			-
Issuance of common stock		4,311			1,615		-		-			-		-			1,615
Cumulative translation adjustment		-			-		-		-			20		-			20
Net loss		-			-		-		-			-		(958	)		(958	)
Balance at June 30, 1999		4,311			1,615		-		-			20		(1,393	)		242
Issuance of common stock		283			793		-		-			-		-			793
Issuance of equity rights		-			-		-		171			-		-			171
Issuance of special warrants		-			-		-		255			-		-			255
Settlement of advances:
Issuance of common stock		280			175		-		-			-		-			175
Cancellation of common stock		(120	)		-		-		-			-		-			-
Cumulative translation adjustment		-			-		-		-			16		-			16
Net loss		-			-		-		-			-		(1,605	)		(1,605	)
Balance at June 30, 2000		4,754			2,583		-		426			36		(2,998	)		47
Issuance of common stock:
Initial Public Offering (“IPO”)		1,333			5,727		-		-			-		(38	)		5,689
Other		88			341		-		-			-		-			341
Issuance of special warrants		-			-		-		1,722			-		-			1,722
Conversion of special warrants		547			1,977		-		(1,977	)		-		-			-
Issuance of Series A special warrants		-			-		-		4,335			-		-			4,335
Conversion of Series A special warrants		1,248			4,335		-		(4,335	)		-		-			-
Conversion of equity rights		62			171		-		(171	)		-		-			-
Cumulative translation adjustment		-			-		-		-			182		-			182
Net loss		-			-		-		-			-		(2,524	)		(2,524	)
Balance at June 30, 2001		8,032			15,134		-		-			218		(5,560	)		9,792
Cumulative translation adjustment		-			-		-		-			11		-			11
Net loss		-			-		-		-					(3,732	)		(3,732	)
Balance at June 30, 2002		8,032			15,134		-		-			229		(9,292	)		6,071

(The accompanying notes are an integral part of these interim consolidated financial statements)

(continued on next page)

Adherex Technologies Inc.

(a development stage company)

Unaudited Condensed Consolidated Statements of Stockholders' Equity (Continued)

(U.S. dollars and shares in thousands, except per share information)

	Common Stock					Non-redeemable Preferred Stock			Additional Paid-in			Accumulated Other Comprehensive			Deficit Accumulated During Development			Total Shareholders’
	Number		Amount			of Subsidiary			Capital			Income			Stage			Equity
Balance at June 30, 2002		8,032		15,134			-			-			229			(9,292	)		6,071
Common stock issued for Oxiquant acquisition		8,032		11,077			-			543			-			-			11,620
Exercise of stock options		5		4			-			-			-			-			4
Distribution to shareholders		-		-			-			-			-			(158	)		(158	)
Stated capital reduction		-		(9,489	)		-			9,489			-			-			-
Stock options issued to consultants		-		-			-			4			-			-			4
Equity component of June convertible notes		-		-			-			1,058			-			-			1,058
Financing warrants		-		-			-			53			-			-			53
Cumulative translation adjustment		-		-			-			-			(159	)		-			(159	)
Net loss		-		-			-			-			-			(17,795	)		(17,795	)
Balance at June 30, 2003		16,069		16,726			-			11,147			70			(27,245	)		698
Stock options issued to consultants		-		-			-			148			-			-			148
Repricing of warrants related to financing		-		-			-			18			-			-			18
Equity component of December convertible notes		-		-			-			1,983			-			-			1,983
Financing warrants		-		-			-			54			-			-			54
Conversion of June convertible notes		1,728		1,216			-			(93	)		-			-			1,123
Conversion of December convertible notes		1,085		569			-			(398	)		-			-			171
Non-redeemable preferred stock		-		-			1,045			-			-			-			1,045
December private placement		11,522		8,053			-			5,777			-			-			13,830
May private placement		4,669		6,356			-			2,118			-			-			8,474
Exercise of stock options		18		23			-			-			-			-			23
Amalgamation of 2037357 Ontario Inc.		800		660			(1,045	)		363			-			-			(22	)
Cumulative translation adjustment		-		-			-			-			(219	)		-			(219	)
Net loss		-		-			-			-			-			(6,872	)		(6,872	)
Balance at June 30, 2004		35,891		33,603			-			21,117			(149	)		(34,117	)		20,454
Stock options issued to consultants		-		-			-			39			-			-			39
Stock options issued to employees		-		-			-			604			-			-			604
Cost related to SEC registration		-		(493	)		-			-			-			-			(493	)
Acquisition of Cadherin Biomedical Inc.		644		1,252			-			-			-			-			1,252
Cumulative translation adjustment		-		-			-			-			1,392			-			1,392
Net loss – six months ended December 31, 2004		-		-			-			-			-			(6,594	)		(6,594	)
Balance at December 31, 2004		36,535		34,362			-			21,760			1,243			(40,711	)		16,654

(The accompanying notes are part of these interim consolidated financial statements)

(continued on next page)

Adherex Technologies Inc.

(a development stage company)

Unaudited Interim Consolidated Statements of Stockholders' Equity (Continued)

(U.S. dollars and shares in thousands, except per share information)

	Common Stock					Non-redeemable Preferred Stock		Additional Paid-in		Accumulated Other Comprehensive		Deficit Accumulated During Development			Total Shareholders’
	Number		Amount			of Subsidiary		Capital		Income		Stage			Equity
Balance at December 31, 2004		36,535		34,362			-		21,760		1,243		(40,711	)		16,654
Financing costs		-		(141	)		-		-		-		-			(141	)
Exercise of stock options		15		25			-		-		-		-			25
Stock options issued to consultants		-		-			-		276		-		-			276
July private placement		6,079		7,060			-		1,074		-		-			8,134
Net loss		-		-			-		-		-		(13,871	)		(13,871	)
Balance at December 31, 2005		42,629		41,306			-		23,110		1,243		(54,582	)		11,077
Stock options issued to consultants		-		-			-		100		-		-			100
Stock options issued to employees		-		-			-		491		-		-			491
May private placement		7,753		5,218			-		822		-		-			6,040
Net loss		-		-			-		-		-		(16,440	)		(16,440	)
Balance at December 31, 2006		50,382		46,524			-		24,523		1,243		(71,022	)		1,268
Stock options issued to consultants		-		-			-		59		-		-			59
Stock options issued to employees		-		-			-		2,263		-		-			2,263
February financing		75,759		17,842			-		5,379		-		-			23,221
Exercise of warrants		2,086		563			-		131		-		-			694
Net loss		-		-			-		-		-		(13,357	)		(13,357	)
Balance at December 31, 2007		128,227		64,929			-		32,355		1,243		(84,379	)		14,148
Stock options issued to consultants		-		-			-		88		-		-			88
Stock options issued to employees		-		-			-		2,417		-		-			2,417
Net loss		-		-			-		-		-		(13,600	)		(13,600	)
Balance at December 31, 2008		128,227		64,929			-		34,860		1,243		(97,979	)		3,053
Stock options issued to consultants		-		-			-		10		-		-			10
Stock options issued to employees		-		-			-		355		-		-			355
Net loss for quarter		-		-			-		-		-		(3,012	)		(3,012	)
Balance at December 31, 2009		128,227		64,929			-		35,225		1,243		(100,991	)		407
Stock options issued to consultants		-		-			-		-		-		-			-
Stock options issued to employees		-		-			-		-		-		-			-
Net loss for quarter		-		-			-		-		-		(366	)		(366	)
Balance at March 31, 2010		128,227	$	64,929		$	-	$	35,225	$	1,243	$	(101,357	)	$	40

(The accompanying notes are an integral part of these interim consolidated financial statements)

Adherex Technologies Inc.

(a development stage company)

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(U.S. dollars and shares in thousands, except per share information)

1.	Going Concern

Adherex Technologies Inc. (“Adherex”), together with its wholly owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation, collectively referred to herein as the “Company,” is a development stage biopharmaceutical company focused on cancer therapeutics.

These unaudited interim consolidated financial statements have been prepared using generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) of America that are applicable to a going concern which contemplates that Adherex will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.

The Company is a development stage company and during the three months ended March 31, 2010, incurred a net loss of $366. At March 31, 2010, it had an accumulated deficit of $101,357 and had experienced negative cash flows from operations since inception in the amount of $77,049. As further described in Note 5 Subsequent Events, on April 30, 2010, the Company announced the first closing of a $7.2 million funding into the Company.

These financial statements do not reflect the potentially material adjustments in the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate.

2.	Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these financial statements. These financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company's Annual Report on Form 10-K for the year ended December 31, 2009. Except as set out below, the Company's accounting policies are consistent with those presented in the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. These unaudited interim consolidated financial statements have been prepared in U.S. dollars.

Adherex Technologies Inc.

(a development stage company)

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(U.S. dollars and shares in thousands, except per share information)

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in these interim condensed consolidated financial statements. Actual results could differ from these estimates. In the opinion of management, these unaudited interim consolidated financial statements include all normal and recurring adjustments, considered necessary for the fair presentation of the Company’s financial position at March 31, 2010, and to state fairly the results for the periods presented.

Cash and cash equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less.

The Company places its cash and cash equivalents in investments held by financial institutions in accordance with its investment policy designed to protect the principal investment. At March 31, 2010, the Company had $3 in money market investments, which typically have minimal risk, and $345 in cash. The financial markets have been volatile resulting in concerns regarding the recoverability of money market investments. The Company did not experience any loss or write down of its money market investments for the three-month period ended March 31, 2010 and 2009, respectively.

3. Recent Accounting Pronouncements

In January 2010, an update was made to the Fair Value Measurements and Disclosures topic of the FASB codification that requires new disclosures for fair value measurements and provides clarification for existing disclosure requirements. More specifically, this update will require (a) an entity to disclose separately the amounts of significant transfers into and out of Level 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances, and settlements to be presented separately on a gross basis in the reconciliation of Level 3 fair value measurements. This update is effective for fiscal years beginning after December 15, 2009 except for Level 3 reconciliation disclosures which are effective for fiscal years beginning after December 15, 2010. The Company does not expect the adoption of the guidance to have an impact on the Company’s consolidated financial position and results of operations.

Adherex Technologies Inc.

(a development stage company)

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(U.S. dollars and shares in thousands, except per share information)

4. Stockholders' Equity

Warrants to purchase common stock

At March 31, 2010, the Company had the following warrants outstanding to purchase common stock priced in U.S. dollars with a weighted average exercise price of $0.44 and a weighted average remaining life of 0.7 years:

Warrant Description	Number Outstanding at March 31 2010		Exercise Price In U.S. Dollars		Expiration Date
Investor warrants		2,326	$	0.97	May 7, 2010
		2,326

The 2,326 warrants with an exercise price of $0.97 expired on May 7, 2010. Please read Note 5 – Subsequent Events for further details of additional warrants outstanding as of April 30, 2010.

Stock option plan

The Compensation Committee of the Board of Directors administers the Company's stock option plan. The Compensation Committee designates eligible participants to be included under the plan and approves the number of options to be granted from time to time under the plan.

A maximum of 20,000 options (not including 700 options previously issued to the former Chief Executive Officer and specifically approved by the stockholders outside the plan) are authorized for issuance under the plan. The option exercise price for all options issued under the plan is based on the fair value of the underlying shares on the date of grant. The stock option plan, as amended, allows the issuance of U.S. and Canadian dollar denominated grants.

During the three-month periods ended March 31, 2010 and 2009, the Company recognized total stock-based compensation expense of $0 and $301, respectively.

Valuation assumptions

There were no options granted in the three month period ended March 31, 2010 and the options granted in the three-month periods ended March 31, 2009 were estimated using the Black-Scholes option-pricing model, using the following weighted average assumptions: expected dividend 0%, risk-free interest rate of 3.15%, expected volatility 85% and a 7 year expected life.

Adherex Technologies Inc.

(a development stage company)

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(U.S. dollars and shares in thousands, except per share information)

Stock option activity

The following is a summary of option activity for the three-month period ended March 31, 2010 for stock options denominated in Canadian dollars:

	Number of Options		Weighted- average Exercise Price
Outstanding at December 31, 2009		2,623	CAD$	2.19
Granted		-		-
Exercised		-		-
Forfeited/cancelled/expired		-	CAD$	2.19
Outstanding at March 31, 2010		2,623	CAD$	2.19

The following is a summary of option activity for the three-month period ended March 31, 2010 for stock options denominated in U.S. dollars:

	Number of Options		Weighted- average Exercise Price
Outstanding at December 31, 2009		13,201	$	0.55
Granted		-		-
Exercised		-		-
Forfeited/cancelled/expired		-		-
Outstanding at March 31, 2010		13,201	$	0.55

5.	Subsequent Event

On April 30, 2010, Adherex Technologies Inc. (TSX:AHX), announced that it has completed a first closing of a non-brokered private placement (“Private Placement”) of 240,066,664 units, at a price of $0.03 per unit for gross proceeds of CDN$7,202,000. Adherex intends to raise up to an additional CDN$1,800,000 by way of a non-brokered private placement which will occur in one or more closings and up to an additional CDN$12,750,000 by way of a rights offering.

The equity financings will consist of:

a non-brokered private placement by Adherex of between 240,000,000 and 300,000,000 units, at a price of $0.03 per unit for gross proceeds of between CDN$7,200,000 and CDN$9,000,000; and

a rights offering to its shareholders for the distribution of rights to subscribe for 425,000,000 units at a price of $0.03 per unit, for gross proceeds of up to $12,750,000.

Purchasers of units in the private placement that are existing shareholders of Adherex have agreed not to participate in the rights offering.

Each unit shall consist of one common share and one common share purchase warrant (a “Warrant”). Each Warrant will entitle the holder thereof to purchase one common share of the Company at a purchase price of CDN$0.08 per share for a period of five years from the issue date. The subscription price for the equity financings represents a 40% discount to the 5 day volume weighted average price of the Company’s common shares on the TSX at the date of receipt of the term sheet from Southpoint.

Adherex Technologies Inc.

(a development stage company)

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(U.S. dollars and shares in thousands, except per share information)

Subject to receiving the required regulatory approvals and as soon as possible after the completion of the first closing of the private placement, it is anticipated that Adherex will file a preliminary short-form prospectus for the rights offering with the securities regulatory authorities in Canada to qualify the distribution of the rights in Canada and a Form S-1 registration statement with the Securities and Exchange Commission to register the transaction in the United States. The commencement of the rights offering will occur promptly following the receipt for the final prospectus in Canada and the effectiveness of the registration statement in the United States. Adherex intends to complete the rights offering as soon as possible thereafter. Adherex intends to announce additional information regarding the rights offering at the time it files the prospectus and registration statement.

Adherex plans to use of proceeds of the sale of the Units will be to (i) conduct and monitor a Phase II Eniluracil study, (ii) satisfy corporate overhead and related expenses, and (iii) pay financing related expenses.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT

The discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP in the United States (“U.S.”) and have been prepared by and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these financial statements. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable.

We operate in a highly competitive environment that involves significant risks and uncertainties, some of which are beyond our control. Our actual results, performance or achievements may be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Words such as “may,” “will,” “expect,” “might”, “believe,” “anticipate,” “intend,” “could,” “estimate,” “project,” “plan,” and other similar words are one way to identify such forward-looking statements. Forward-looking statements in this report include, but are not limited to, statements with respect to (1) our anticipated sources and uses of cash and cash equivalents; (2) our anticipated commencement dates, completion dates and results of clinical trials; (3) our efforts to pursue collaborations with the government, industry groups or other companies; (4) our anticipated progress and costs of our clinical and preclinical research and development programs; (5) our corporate and development strategies; (6) our expected results of operations; (7) our anticipated levels of expenditures; (8) our ability to protect our intellectual property; (9) the anticipated applications and efficacy of our drug candidates; (10) our ability to attract and retain key employees; and (11) the nature and scope of potential markets for our drug candidates. All statements, other than statements of historical fact, included in this report that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements. We include forward-looking statements because we believe it is important to communicate our expectations to our investors. However, all forward-looking statements are based on management’s current expectations of future events and are subject to a number of risks and uncertainties, including our need to raise money in the very near term and others as discussed in this report. Although we believe the expectations reflected in the forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained, and we caution you not to place undue reliance on such statements.

Overview

On July 7, 2009, we announced that we intended to focus our remaining financial resources on the development of oral eniluracil. We will focus our resources on the development of a redesigned study combining oral eniluracil, 5-fluorouracil, or 5-FU, and leucovorin targeting anti-cancer indications. After a careful evaluation of the data from the prior GlaxoSmithKline, or GSK, studies and data from our own and other studies using eniluracil, we believe we can begin patient enrollment in a Phase II study with eniluracil, 5-FU and leucovorin within the next nine months. Additionally, throughout the remainder of 2009, we conducted a strategic review of ADH-1 and STS. Our evaluation of ADH-1 resulted in the termination of our license agreement with McGill University. We continue to hold various ADH-1 and small molecule patents that are property of Adherex. We are also supporting an investigator led Phase I study that will combine ADH-1 with gemcitabine. With regards to STS, we continue patient enrollment of our Phase III studies for both the International Childhood Liver Tumour Strategy Group, known as SIOPEL, and the Children's Oncology Group, or COG.

As discussed in Note 5 - Subsequent Events, we recently completed a funding into the Company which will allow for our planned clinical development of eniluracil as well as the support of our remaining programs. We currently have four employees and members of the Board of Directors have agreed to continue to serve for the benefit of the shareholders without further cash compensation.

We are a biopharmaceutical company focused on cancer therapeutics. We have the following products in the clinical stage of development: (1) Eniluracil, an oral dihydropyrimidine dehydrogenase, or DPD, inhibitor, which may improve the tolerability and effectiveness of 5-fluorouracil (5-FU), one of the most widely used oncology drugs in the world; and (2) STS, a chemoprotectant being developed to reduce or prevent hearing loss that may result from treatment with platinum-based chemotherapy drugs and (3) ADH-1, a peptide molecule that selectively targets N-cadherin, a protein present on the blood vessels of solid tumors.

We are evaluating a study design for a Phase II study in which we will dose patients with eniluracil, 5-FU and leucovorin. Our prior eniluracil studies have shown that the dose of eniluracil was too low and consequently provided inadequate inactivation of DPD. We plan to increase the dose of eniluracil and also include leucovorin in our planned clinical trial. Leucovorin potentiates the anticancer activity of 5-FU and has been shown to be well tolerated in patients treated with both eniluracil and 5FU. Leucovorin is uniquely appropriate to eniluracil regimens because it greatly reduces the variability of 5-FU dosing. We are evaluating cancer disease targets for our planned Phase II trial and are currently considering colorectal and breast cancer, where Xeloda is indicated. The combination of eniluracil and 5-FU has been shown to be active and well tolerated against these diseases. However, the previous studies used eniluracil in a ten to one ratio to 5-FU. Because such high ratios of eniluracil to 5-FU were found to decrease the antitumor activity in laboratory animals, our planned study will use a strategy that adequately inactivates DPD and does not have high levels of eniluracil present when 5-FU is administered. We expect to design and commence these studies within the next nine months. We will solicit the assistance of certain key opinion leaders for the design of these studies.

We continue to enroll patients in our Phase III trials of STS with the International Childhood Liver Tumour Strategy Group, known as SIOPEL and the Children's Oncology Group, or COG. The SIOPEL trial is expected to enroll approximately 100 pediatric patients with liver (hepatoblastoma) cancer at participating SIOPEL centers worldwide and the COG study is expected to enroll up to 120 pediatric patients worldwide in five different disease indications.

We have terminated our license agreement with McGill University related to ADH-1. However, Adherex continues to hold various ADH-1 and small molecule patents that are our property. We are also supporting an investigator led Phase I study that will combine ADH-1 with gemcitabine.

Our current prioritization initiative focuses primarily on our clinical activities with eniluracil, as well as logistical and product support of ongoing clinical programs.

In addition to our current development efforts, we continue to pursue collaborations with other pharmaceutical and biotechnology companies, governmental agencies, academic or other corporate collaborators with respect to these molecules. Some of these preclinical molecules are currently being tested under agreements with third parties that may help to advance these products into future clinical development, either by us or under investigator-initiated studies.

The trading of our common stock in the U.S. must now be conducted in the over-the-counter markets, on the pink sheets. Our common stock continues to trade on the Toronto Stock Exchange, or TSX. The TSX also has continued listing standards, including minimum market capitalization and other requirements, that we might not meet in the future, particularly if the price of our common stock does not increase or we are unable to raise capital to continue our operations. On April 22, 2010, the TSX issued an official delisting review of our common stock. The Company has been granted 120 days in which to regain compliance with these requirements.

We have not received and do not expect to have significant revenues from our product candidates until we are either able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue. We experienced net losses of approximately $366 for the three months ended March 31, 2010 and $2 . 2 million for the three months ended March 31, 2009. As of March 31, 2010, our deficit accumulated during development stage was approximately $101.4 million.

Our operating expenses will depend on many factors, including the progress of our drug development efforts and the implementation of further cost reduction measures. Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, salaries for research and development personnel, stock-based compensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the development of product candidates, will depend on the availability of financial resources, the results of our clinical trials and any directives from regulatory agencies, which are difficult to predict. Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated with our facilities in Chapel Hill, North Carolina in support of our drug development programs.

Results of Operations

Three months ended March 31, 2010 versus three months ended March 31, 2009:

In thousands of U.S. Dollars	Three Months Ended March 31, 2010			%			Three Months Ended March 31, 2009			%			Change

Revenue	$	-					$	-					$	-
Operating expenses:
Research and development		163			45	%		1,279			86	%		(1,116	)
General and administration		203			55	%		673			14	%		(470	)
Total operating expenses		366			100	%		1,952			100	%		(1,586	)

Loss from operations		366						(1,952	)					(1,586	)

Loss on impairment of assets held for sale and leasehold inducements		-						(340	)					(340	)
Other income		-						-						-
Interest income		-						46						46
Net loss and total comprehensive loss	$	(366	)				$	(2,246	)				$	(3,295	)

Total operating expense decreased significantly in the three months ended March 31, 2010, as compared to the same period in 2009 primarily due to a significant decrease in our overall clinical development studies and reduction in our employee headcount effective April 2009 and continuing through March 31, 2010.

The Company recorded a loss on impairment of assets related to the write-down of certain assets value held for sale and leasehold improvements during the three months ended March 31, 2010.

The decrease in interest income in the three months ended March 31, 2010, as compared to the same period in 2009, is due to less cash on hand due to funding our operations during the three months ended March 31, 2010, as compared to the same period in 2009.

Quarterly Information

The following table presents selected consolidated financial data for each of the last eight quarters through March 31, 2010, as prepared under U.S. GAAP (U.S. dollars in thousands, except per share information):

Period	Net Loss for the Period			Basic and Diluted Net Loss per Common Share
September 30, 2007	$	(3,202	)	$	(0.02	)
December 31, 2007	$	(3,008	)	$	(0.02	)
March 31, 2008	$	(4,304	)	$	(0.03	)
June 30, 2008	$	(3,442	)	$	(0.03	)
September 30, 2008	$	(3,244	)	$	(0.03	)
December 31, 2008	$	(2,610	)	$	(0.02	)
March 31, 2009	$	(2,246	)	$	(0.02	)
June 30, 2009	$	(761	)	$	(0.01	)
September 30, 2009	$	(35	)	$	(0.00	)
December 31, 2009	$	30		$	0.00
March 31, 2010	$	(366	)	$	(0.00	)

Liquidity and Capital Resources

	March 31,			December 31,
In thousands of U.S. dollars	2010			2009
Selected Asset and Liability Data:
Cash and cash equivalents	$	348		$	685
Working capital		47			412

Selected Stockholders’ Equity Data:
Common stock	$	64,929		$	64,929
Deficit accumulated during the development stage		(101,357	)		(100,991	)
Total stockholders’ equity		40			406

We have financed our operations since inception on September 3, 1996 through the sale of equity and debt securities and have raised gross proceeds totaling approximately $93.0 million through April 30, 2010. We have incurred net losses and negative cash flow from operations each year, and we had an accumulated deficit of approximately $101.4 million at March 31, 2010. We have not generated any revenues to date through the sale of products. We do not expect to have significant revenues or income, other than interest income, until we are able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other payments.

The net cash flow used in operating activities for the three months ended March 31, 2010 was approximately $337, as compared to $2.3 million during the same period in 2009. This decrease is due to a decrease in our overall clinical activities and lower headcount during the three months ended March 31, 2010, as compared to the same period in 2009.

At March 31, 2010, our working capital decreased by approximately $366 from December 31, 2009 primarily due to funding research and development activities and general corporate operations.

Our projections of further capital requirements are subject to substantial uncertainty. Our working capital requirements may fluctuate in future periods depending upon numerous factors, including: our ability to obtain additional financial resources; our ability to enter into collaborations that provide us with up-front payments, milestones or other payments; results of our research and development activities; progress or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in our clinical programs, our drug substance requirements to support clinical programs; change in the focus, direction, or costs of our research and development programs; headcount expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive and technological advances; the potential need to develop, acquire or license new technologies and products; our business development activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any regulatory review process; and commercialization activities, if any.

Outstanding Share Information

The outstanding share data for our company as of March 31, 2010 (in thousands):

	March 31, 2010
Common shares		128,227
Warrants		2,326
Stock options		15,823
Total		146,376

As described in Note 5 - Subsequent Events, the Company closed a $7.2 million funding on April 30, 2010 which consists of 240,066,664 units. Each unit represents one common shares and one warrants.

Financial Instruments

We invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment. At March 31, 2010, we had $0.3 million in cash accounts. We have not experienced any loss or write down of our money market investments for the three months ended March 31, 2010 and 2009, respectively.

Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments may be made in U.S. or Canadian obligations and bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources.

The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose is research and development, we have chosen to avoid investments of a trading or speculative nature.

Off-Balance Sheet Arrangements

Since our inception, we have not had any material off-balance sheet arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such activities.

Contractual Obligations and Commitments

Since our inception, inflation has not had a material impact on our operations. We had no material commitments for capital expenses as of March 31, 2010.

The following table represents our contractual obligations and commitments at March 31, 2010 (in thousands of U.S. dollars):

	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Englert Lease (1)	$	50	$	-	$	-	$	-	$	50
Eastowne Lease (2)		18		-		-		-		18
Drug purchase commitments (3)		-		25		-		-		25
Total	$	68	$	25	$	-	$	-	$	93

(1)

In April 2004, we entered into a lease for facilities in Durham, North Carolina. Amounts shown assume the maximum amounts due under the lease. In July 2008, we entered into an agreement with another company to sublease this facility until September 2010; however, in the event of their default, we would become responsible for the obligation. We are contractually obligated under the lease until September 2010.

(2)	In December 2009, we entered into a lease for new office facilities in Chapel Hill, North Carolina. Amounts shown assume the maximum amounts due under the lease.

(3)	Commitments to our third party manufacturing vendors that supply drug substance primarily for our clinical studies.

Research and Development

Our research and development efforts have been focused on the development of cancer and currently include eniluracil, STS, ADH-1 and various cadherin-based preclinical programs.

We have established relationships with contract research organizations, universities and other institutions, which we utilize to perform many of the day-to-day activities associated with our drug development. Where possible, we have sought to include leading scientific investigators and advisors to enhance our internal capabilities. Research and development issues are reviewed internally and major development issues are presented to the members of our Scientific and Clinical Advisory Board for discussion and review.

Research and development expenses totaled $163 and $1.3 million for the three months ended March 31, 2010 and 2009, respectively.

Our product candidates are in various stages of development and still require significant, time-consuming and costly research and development, testing and regulatory clearances. In developing our product candidates, we are subject to risks of failure that are inherent in the development of products based on innovative technologies. For example, it is possible that any or all of these products will be ineffective or toxic, or will otherwise fail to receive the necessary regulatory clearances. There is a risk that our product candidates will be uneconomical to manufacture or market or will not achieve market acceptance. There is also a risk that third parties may hold proprietary rights that preclude us from marketing our product candidates or that others will market a superior or equivalent product. As a result of these factors, we are unable to accurately estimate the nature, timing and future costs necessary to complete the development of these product candidates. In addition, we are unable to reasonably estimate the period when material net cash inflows could commence from the sale, licensing or commercialization of such product candidates, if ever.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. These estimates are based on assumptions and judgments that may be affected by commercial, economic and other factors. Actual results could differ from these estimates.

Our accounting policies are consistent with those presented in our annual consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Money Market Investments

We are subject to increased risk associated with our cash and cash equivalents due to the recent bank and financial institution failures in the U.S. We maintain an investment portfolio consisting of U.S. or Canadian obligations and bank securities and money market investments in compliance with our investment policy. We do not hold any mortgaged-backed investments in our investment portfolio. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources.

At March 31, 2010, we had $3 in money market investments which typically have minimal risk. The financial markets have been volatile resulting in concerns regarding the recoverability of money market investments. We have not experienced any loss or write down of our money market investments for the three months ended March 31, 2010 and 2009.

Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Our risk associated with fluctuating interest rates on our investments is minimal and not significant to the results of operations. We currently do not use interest rate derivative instruments to manage exposure to interest rate changes. As the main purpose is research and development, we have chosen to avoid investments of a trade or speculative nature.

Foreign Currency Exposure

We are subject to foreign currency risks as we conduct certain clinical development activities in Canada, the United Kingdom, Europe and the Pacific Rim. To date, we have not employed the use of derivative instruments; however, we do hold Canadian dollars which we use to pay certain clinical development activities conducted in Canada and research, and other corporate obligations. At March 31, 2010 we held approximately $0.1 million in Canadian dollars.

Item 4. Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act) as of March 31, 2010. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control over financial reporting that occurred during the three month period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1A. Risk Factors.

The risk factors set forth in our Form 10-K for the fiscal year December 31, 2009 (the “2009 10-K) include risk relating to the Company’s ability raise substantial additional funds in the very near future to continue our operations. As described in Note 5 - Subsequent Events, the Company closed on April 30, 2010 a $7.2 million financing. The Company’s disclosure of the need to raise additional capital to continue operations beyond the second quarter of 2010 is no longer applicable.

We may be unable to effectively deploy the proceeds from the April 30, 2010 financing for the development of eniluracil.

In April 2010, we announced the closing of a $7.2 million financing. This financing requires effective management and deployment of our current employees and consultants. Any inability on our part to manage effectively the deployment of this capital could limit our ability to successfully develop eniluracil.

Item 6. Exhibits

		Registrant’s		Exhibit	Filed
Exhibit No.	Description of Exhibit	Form	Dated	Number	Herewith

31.1	Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002				X

31.2	Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002				X

32.1	Certification of Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002				X

10.27	Eastowne Lease Agreement				X

10.28	Employment Agreement – Rostislav Raykov				X

10.29	Employment Agreement – Robert Andrade				X

10.30	Employment Agreement – Dr. Thomas Spector				X

10.31	Independent Board Member Agreement – Breen, Bussandri, Porter				X

SIGNATURES

Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Adherex Technologies Inc.

Date: May 13, 2010	By:	/s/ Rostislav Raykov
		Rostislav Raykov
		Chief Executive Officer
		(principal executive officer)

Date: May 13, 2010	By:	/s/ Robert Andrade
		Robert Andrade
		Chief Financial Officer
		(principal financial and chief accounting officer)

TABLE OF CONTENTS

Part I: Financial Information Item 1. Financial Statements (unaudited) 3 Item 1. Financial Statements (unaudited)Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations 14 Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures 20 Item 4. Controls and Procedures Part Ii: Other Information 21 Part Ii: Other Information Item 1A. Risk Factors 21 Item 1A. Risk Factors Item 6. Exhibits 22 Item 6. Exhibits Part 1: Financial Information Item 1. Financial Statements

FENCF 10-Q Quarter ended March 31, 2010