ONCY

Business Context and Reporting Period

Company: Oncolytics Biotech Inc.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2009
Business Overview: Oncolytics is a development-stage biotechnology company focused on the research and development of REOLYSIN®, a therapeutic reovirus designed to target cancer cells with an activated Ras pathway. The company has no commercial products and has not generated operating revenues since its inception. It relies on equity financing and strategic partnerships to fund its clinical trials and operations.

Key Financial Metrics

Note: All figures are in Canadian Dollars (Cdn$) unless otherwise specified.

Capitalization: During 2009, the company issued 17,524,211 common shares for net cash proceeds of $37,052,900. Additionally, 200,000 shares were issued for a $684,000 investment in British Canadian Biosciences Corp.

Material Changes vs. Prior Period

• Financial Position: Total assets increased significantly from approximately $14.0 million in 2008 to $35.6 million in 2009, driven primarily by equity financing activities.
• Profitability: The net loss decreased slightly in 2009 compared to 2008 under both Canadian and U.S. GAAP, though the company remains unprofitable with an accumulated deficit of $118.8 million.
• Operational Milestones: The company completed its Phase II clinical trial program in 2009 and received approval in October 2009 to commence a Phase III clinical program.
• Acquisition: In April 2009, the company completed the acquisition of an inactive private company ("PrivateCo") via a plan of arrangement, acquiring approximately $2.3 million in net cash.
• Corporate Structure: The company operates through wholly-owned subsidiaries in Barbados and the U.S. (Delaware) to facilitate international operations and regulatory submissions.

Outlook, Risks, and Management Commentary

Outlook and Guidance: Management expects expenditures to increase in 2010 due to the expansion of the clinical program to include a Phase III trial and associated manufacturing costs. The company anticipates continuing to incur significant losses in the foreseeable future and does not expect to reach profitability until after the successful commercialization of its products. Future capital requirements will depend on scientific progress, regulatory approvals, and the ability to secure additional financing.

Key Risks and Contingencies:

• Development Risk: REOLYSIN® is in the research and development stage. There is no assurance that clinical trials will demonstrate safety and efficacy or that regulatory approval will be obtained.
• Liquidity Risk: The company has no operating revenues and relies on equity financing. Access to capital markets may be restricted due to global economic conditions, potentially forcing a reduction in R&D expenditures.
• Regulatory Risk: Intense regulatory scrutiny by the FDA, Health Canada, and other authorities could delay or prevent marketing approval.
• Manufacturing Risk: The company relies on third-party contract manufacturers. Scaling up production for commercial use presents technical and logistical challenges.
• PFIC Status: The company believes it qualified as a Passive Foreign Investment Company (PFIC) for 2009, which may have adverse tax consequences for U.S. investors.

Investor Verification Checklist

• Cash Runway: Verify the sufficiency of the $34.1 million cash balance to fund the planned Phase III trials and ongoing operations without immediate dilution.
• Phase III Trial Status: Confirm the enrollment progress and preliminary data from the Phase III trial approved in October 2009.
• Financing Terms: Review the terms of the 2009 equity issuance and any subsequent financing to assess dilution impact on existing shareholders.
• Regulatory Filings: Monitor FDA and Health Canada communications regarding the Investigational New Drug (IND) status and any clinical holds.
• Contract Manufacturing: Assess the capacity and reliability of third-party manufacturers to supply REOLYSIN® for large-scale clinical trials.