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 condensed consolidated financial statements, which have been prepared in accordance with generally accounting principles within the United States ("U.S. GAAP"). The preparation of these financial statements also conform in all material respects with generally accepted accounting principles in Canada ("Canadian GAAP") except as described in Note 6 in the interim condensed consolidated financial statements and as more fully described in Note 15 in our annual consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007. 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," "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 Quarterly Report include, but are not limited to, statements with respect to (1) our anticipated commencement dates, completion dates and results of clinical trials; (2) our anticipated progress and costs of our clinical and preclinical research and development programs; (3) our corporate and development strategies; (4) our expected results of operations; (5) our anticipated levels of expenditures; (6) our ability to protect our intellectual property; (7) the anticipated applications and efficacy of our drug candidates; (8) our ability to attract and retain key employees; (9) our efforts to pursue collaborations with the government, industry groups or other companies; (10) the nature and scope of potential markets for our drug candidates and (11) our anticipated sources and uses of cash, cash equivalents and short-term investments. All statements, other than statements of historical fact, included in this Quarterly 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 that 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 those discussed in this Quarterly Report in "Part II Other Information-Item 1A. Risk Factors". 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

We are a biopharmaceutical company focused on cancer therapeutics with preclinical and clinical product candidates. Our clinical product portfolio includes:

• Eniluracil, a dihydropyrimidine dehydrogenase, or DPD, inhibitor that we are developing to enhance the therapeutic value and effectiveness of 5-fluorouracil, or 5-FU, one of the world's most widely used oncology agents. 5-FU is currently used as first or second-line therapy for a variety of cancers, including colorectal, breast, gastric, head and neck, ovarian, and basal cell cancer of the skin, among others. We have two ongoing Phase I and Phase I/II clinical trials combining eniluracil and 5-FU which are intended to establish the safety, tolerability and initial effectiveness of our proprietary combination. We have enrolled 39 patients in the Phase I trial and some dose limiting toxicity has been reached, therefore the 100 mg cohort has been expanded. We licensed eniluracil from GlaxoSmithKline, or GSK, in July 2005.

• ADH-1, an anti-cancer drug that selectively targets N-cadherin present on certain tumor cells and tumor blood vessels. We currently have two combination clinical studies ongoing, including a Phase I study using systemic ADH-1 in combination with three different systemic chemotherapy agents, and a Phase I/II study combining systemic ADH-1 with regionally-infused melphalan for the treatment of melanoma. This melanoma study is being expanded to include eight clinical centers and accrue up to 56 patients. Currently, we have enrolled 33 patients in this melanoma study. In April 2008, we completed patient enrollment in our Phase I ADH-1 combination study. While some clinical responses have been noted, a number of patients remain on study and we are in the process of evaluating the full dataset. We licensed ADH-1 from McGill University in February 2001.

• STS, a chemoprotectant that has been shown in Phase I and Phase II clinical studies conducted by investigators at Oregon Health & Science University, or OHSU, to reduce the disabling loss of hearing in patients treated with platinum-based anti-cancer agents. We licensed STS from OHSU in September 2002.

Our preclinical portfolio includes: (1) novel peptides and small chemical molecule successors to ADH-1; (2) peptides and small molecules targeting the cadherin-mediated metastatic spread of some cancers; and (3) peptides that combine both angiolytic and anti-angiogenic properties. We have synthesized small chemical molecules and peptide antagonists and agonists for a wide array of cadherin adhesion molecules, with drug candidates available to move into future clinical development, particularly in the following areas:

• Peptide N-cadherin antagonists. We have identified novel peptide molecules that differ in structure from ADH-1 and that have extended stability in plasma. These molecules offer the potential advantages of extended plasma half-life and enhanced potency compared to ADH-1.

• Small molecule N-cadherin antagonists. We have identified a series of small chemical molecules that, in our preliminary studies, have displayed potent N-cadherin antagonism activity. Unlike ADH-1 and the other peptide N-cadherin antagonists, these molecules are not peptides and are smaller and simpler in structure. Compared to peptides, small chemical molecules are often active after oral administration, more stable and have different potency and toxicity profiles.

• OB-cadherin. OB-cadherin is reported to be involved in the metastatic spread of certain cancers to sites distant from the original tumor. Metastatic disease is a major determinant of both a patient's survival and quality-of-life. We have developed OB-cadherin peptide and small molecule antagonists with the potential to reduce or slow down the metastatic spread of tumors, such as breast and prostate cancers.

• VE-cadherin. Like N-cadherin, VE-cadherin is important in the structural integrity of certain tumor blood vessels. We have developed peptide VE-cadherin antagonists that have the potential to be synergistic with our N-cadherin antagonists.

In addition to our current development efforts, we continue to pursue collaborations with other pharmaceutical companies, governmental agencies, academic or corporate collaborators with respect to these and other cadherin agonist and antagonist molecules. Our drug discovery and development efforts are supported by more than 50 issued U.S. patents and more than 50 issued and pending patents worldwide that we either own or have licensed exclusively.

We have not received any revenues to date through the sale of our products and do not expect to have significant revenues until we are either able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with licensing fees, milestone payments, royalties, up-front payments or other revenue. As of March 31, 2008, our deficit accumulated during development stage was approximately $88.7 million.

Our operating expenses will depend on many factors, including the progress of our drug development efforts and the potential commercialization of our product candidates. 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 results of our clinical trials, the availability of financial resources 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, insurance and other administrative matters

associated with our facilities in the Research Triangle Park, North Carolina in support of our drug development programs.

Results of Operations

Three months ended March 31, 2008 versus three months ended March 31, 2007:



                                           Three Months                  Three Months
                                               Ended                         Ended                     Increase
In thousands of U.S. Dollars              March 31, 2008        %       March 31, 2007        %       (Decrease)
Revenue                                   $            -                $            -                $        -

Operating expenses:
Research and development                            3,375       76 %              3,157       77 %            218
General and administration                          1,061       24 %                958       23 %            103

Total operating expense                             4,436      100 %              4,115      100 %            321

Loss from operations                               (4,436 )                      (4,115 )                    (321 )

Other income (expense):
Interest income                                       132                           147                       (15 )

Total other income                                    132                           147                       (15 )

Net loss and comprehensive loss           $        (4,304 )             $        (3,968 )             $      (336 )

• Total operating expenses increased in the three months ended March 31, 2008, as compared to the same period in 2007 primarily due to an increase in stock-based compensation expense. Stock-based compensation expense totaled $1.3 million in the three months ended March 31, 2008, as compared to $0.2 million for the three months ended March 31, 2007. During the first quarter of 2008, we issued 3.2 million stock options with immediate vesting. The increase in stock-based compensation expense was offset by lower cash expenses in research and development during the first quarter of 2008, as compared to same period in 2007 due to our $1.0 million payment to purchase all of GlaxoSmithKline's, or GSK, remaining options to buy back Eniluracil under our license agreement on March 1, 2007.

• The slight decrease in interest income in the first quarter of 2008, as compared to the same period in 2007 is due to additional cash on hand at March 31, 2007 due to the completion of our equity offering on February 21, 2007 with net proceeds of $23.2 million. In addition, interest rates were lower in the three month ended March 31, 2008 as compared to the same period in 2007.

Quarterly Information

The following table presents selected consolidated financial data for each of
the last eight quarters through March 31, 2008, as prepared under U.S. GAAP
(dollars in thousands, except per share information):



                                                        Basic and Diluted
                                 Net Loss for the         Net Loss per
           Period                     Period              Common Share
           June 30, 2006        $           (3,854 )   $             (0.08 )
           September 30, 2006   $           (4,648 )   $             (0.09 )
           December 31, 2006    $           (4,761 )   $             (0.09 )
           March 31, 2007       $           (3,968 )   $             (0.05 )
           June 30, 2007        $           (3,179 )   $             (0.03 )
           September 30, 2007   $           (3,202 )   $             (0.02 )
           December 31, 2007    $           (3,008 )   $             (0.02 )
           March 31, 2008       $           (4,304 )   $             (0.03 )

The increase in our net loss for the quarter ended March 31, 2008, as compared to the prior quarters was due to $1.3 million in stock-based compensation incurred during the three months ended March 31, 2008.

Liquidity and Capital Resources



                                                      March 31,       December 31,
   In thousands, except share data                       2008             2007
   Selected Asset and Liability Data:
   Cash and cash equivalents                          $   13,298     $       16,162
   Working capital                                        11,248             14,159

   Selected Stockholders' Equity Data:
   Common stock                                       $   64,929     $       64,929
   Deficit accumulated during the development stage      (88,683 )          (84,379 )
   Total stockholders' equity                             11,177             14,148

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 $86.0 million through March 31, 2008. We have incurred net losses and negative cash flow from operations each year, and we had an accumulated deficit of approximately $88.7 million as of March 31, 2008. 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 licensing fees, royalties, milestone payments or up-front payments.

The net cash used in operating activities totaled $2.8 million for the three months ended March 31, 2008, as compared to $6.4 million in the same period during 2007. The decrease is due to the $1.0 million payment to GSK in March 2007 and increased cash payments to vendors during the first quarter of 2007 from our improved liquidity as a result of our February 2007 equity offering.

At March 31, 2008, our working capital decreased by approximately $2.9 million as compared to December 31, 2007 due to the funding of general corporate operations.

We believe that our current cash and cash equivalents of $13.3 million will be sufficient to satisfy our anticipated capital requirements through June 30, 2009. In February 2008, we revised our clinical development strategy and implemented a plan which has allowed us to extend our existing financial resources by delaying certain clinical trial and drug manufacturing commitments. The revisions primarily relate to planned combination studies with ADH-1 and future planned orders for the manufacturing of ADH-1. We do not anticipate these revisions to have a significant impact on our overall development plan. 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: results of our research and development activities; progress or lack of progress in our preclinical studies or clinical trials; our drug substance requirements to support clinical programs; our ability to enter into collaborations that provide us with funding, up-front payments, milestone or other payments; our ability to obtain additional financial resources, change in the focus, direction, or costs of our research and development programs; 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.

To finance our operations beyond June 30, 2009, we will need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual property portfolio, or from other sources. There can be no assurance that we will be able to raise the necessary capital or that such funding will be available on favorable terms or at all.

Financial Instruments

At March 31, 2008, we held cash and cash equivalents of $13.3 million, which consisted primarily of highly liquid money market funds.

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 trade or speculative nature.

We classify investments with original maturities at the date of purchase greater than three months which mature at or less than twelve months as current. We carry investments at the fair value with unrealized gains and losses included in other comprehensive income (loss).

Off-Balance Sheet Arrangements

Since our inception, we have not had any material off-balance sheet arrangements.

Contractual Obligations and Commitments

Since our inception, inflation has not had a material effect on our operations.
We had no material commitments for capital expenses as of March 31, 2008.

The following table represents our contractual obligations and commitments at
December 31, 2007 (in thousands of U.S. dollars):



                                  Less than      1-3         4-5        More than 5
                                   1 year       years       years          years        Total
 Englert Lease (1)               $       102   $   185   $        -    $          -    $   287
 Maplewood Lease (2)                     361       755           663              -      1,779
 Drug purchase commitments (3)           436       184            29              -        649
 McGill License (4)                      506     1,332            -               -      1,838
 OHSU License (5)                         -         -             -               -         -
 GSK (6)                                  -         -             -               -         -

 Total                           $     1,405   $ 2,456   $       692   $          -    $ 4,553

(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.

(2) In August 2005, we entered into a lease for new office and laboratory facilities in Durham, North Carolina. Amounts shown assume the maximum amounts due under the lease. We received lease and capital inducements to enter into the lease, including a 50 percent discount for the first 24 months of the 84-month lease term and capital inducements with a fair market value of $0.5 million.

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

(4) Research obligations are shown in the table. Royalty payments, which are contingent on sales, are not included.

(5) Under the license agreement with OHSU for STS, we are required to pay specified amounts in the event that we complete certain Adherex-initiated clinical trials. For example, upon the completion of the Phase III clinical trial with SIOPEL or COG, we may become responsible for a payment to OHSU of up to $0.5 million. Royalty payments, which are contingent on sales, are not included.

(6) Royalty and milestone payments that we may be required to pay, which are contingent on sales or progress of clinical trials, are not included. Under the terms of the Development and License Agreement with GSK, if we file an NDA with the FDA, we may be required to pay a development milestone of $5.0 million to GSK. Depending

Research and Development

Our research and development efforts have been focused on the development of cancer therapeutics and our cadherin technology platform and currently include ADH-1, eniluracil, STS 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 by our executive management and supporting scientific staff. Major development issues are presented to the members of our Scientific and Clinical Advisory Board for discussion and review.

Research and development expenses totaled $3.4 million and $3.2 million for the three months ended March 31, 2008 and 2007, respectively.

Eniluracil, which we licensed from GSK in July 2005, is a DPD inhibitor that was previously under development by GSK for the treatment of cancer. Eniluracil is being developed to enhance the therapeutic value and effectiveness of 5-FU, one of the world's most widely-used oncology agents. The ongoing Phase I clinical trials of eniluracil in combination with 5-FU are intended to determine the maximum tolerated dose, or MTD, of 5-FU in combination with eniluracil. An MTD has not yet been determined but we expect the U.S. Phase I trial to complete patient enrollment in the first half of 2008. We have enrolled 39 patients in the Phase I trial and some dose limiting toxicity has been reached, therefore the 100 mg cohort has been expanded. Once an MTD has been determined, we plan to commence a Phase II clinical trial in breast cancer. The ongoing Asian Phase I/II clinical trial of eniluracil in combination with 5-FU in liver (hepatocellular) cancer has been amended to permit a more rapid dose escalation based upon the results of the ongoing U.S. Phase I trial.

ADH-1 is a small peptide molecule that selectively targets N-cadherin, a protein present on certain tumor cells and tumor blood vessels. Based on encouraging data from our preclinical studies, we initiated a clinical program with ADH-1 in combination with various chemotherapeutic agents. In October 2006, we initiated a Phase I study intended to define the dose limiting toxicities and maximum tolerated dose of ADH-1 in combination with three separate chemotherapies: ADH-1
+ docetaxel (Taxotere®), ADH-1 + carboplatin (a generically available agent), and ADH-1 + capecitabine (Xeloda®). In April 2008, we completed patient enrollment in this Phase I ADH-1 combination study. While some clinical responses have been noted, a number of patients remain on study and we are in the process of evaluating the full dataset. The Phase I study combining systemic ADH-1 in combination with regionally-infused melphalan for the treatment of melanoma is being expanded to include eight clinical centers and accrue up to 56 patients. Currently, we have enrolled 33 patients in this melanoma study.

STS is a chemoprotectant that has been shown in Phase I and Phase II clinical studies conducted by investigators at OHSU to reduce the loss of hearing in patients, both adults and children, treated with platinum-based chemotherapy agents. In 2007, the results of a Phase III trial in adults with head and neck cancer treated with cisplatin were reported demonstrating that STS was able to . . .