ONCY

Business Context and Reporting Period

Company: Oncolytics Biotech Inc.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2013
Accounting Standard: International Financial Reporting Standards (IFRS)
Business Overview: Oncolytics is a development-stage biopharmaceutical company focused on the discovery and development of REOLYSIN®, a therapeutic reovirus designed to treat cancers with an activated Ras pathway. The company has no commercial product sales and relies on equity financing to fund research and development (R&D) and clinical trials.

Key Financial Metrics

Note: The company reported no debt other than trade accounts payable. Cash used in operating activities for 2013 was $24,440,533.

Material Changes vs. Prior Period

• Improved Net Loss: The net loss decreased by approximately $12.8 million (35%) compared to 2012, primarily due to a significant reduction in Research and Development expenses (down from $31.4 million in 2012 to $18.5 million in 2013).
• Capital Raise: In 2013, the company issued 8,093,533 common shares via a public offering, generating net cash proceeds of approximately $30.4 million. This contrasts with 2012, where 5.5 million shares were issued for $20.8 million.
• Liquidity Position: Cash and cash equivalents increased by $5.9 million year-over-year, bolstered by the equity financing. Total assets grew by $6.1 million.
• Share Count: The number of outstanding shares increased by approximately 10.5% due to the public offering and stock option exercises.

Outlook, Risks, and Management Commentary

• Outlook: Management anticipates continuing to incur significant losses in 2014 and the foreseeable future. The company expects to require additional financing to fund ongoing R&D and clinical trials. No profitability is expected until successful commercialization of REOLYSIN®.
• Clinical Progress: As of December 31, 2013, the company had multiple ongoing clinical trials (Phase I, II, and III) for REOLYSIN® in various cancer indications, including breast, lung, colorectal, and pancreatic cancers, often in combination with standard chemotherapy.
• Key Risks:
  • Development Risk: REOLYSIN® is still in the research and development stage; there is no assurance it will prove safe or effective in humans or receive regulatory approval.
  • Financing Risk: The company has a history of losses and no operating revenues. Future operations depend on the ability to raise additional capital through equity or debt, which may not be available on favorable terms.
  • Manufacturing Risk: The company relies on third-party contract manufacturers for clinical supply; disruptions could delay trials.
  • Regulatory Risk: Intense regulatory approval processes in the U.S. (FDA) and other jurisdictions could delay or prevent marketing.
  • PFIC Status: The company believes it is a Passive Foreign Investment Company (PFIC) for U.S. tax purposes, which may have adverse tax consequences for U.S. shareholders.
• Subsequent Event: On February 27, 2014, the company entered into a purchase agreement with Lincoln Park Capital Fund, LLC, providing an initial $1.0 million investment and access to up to $25.0 million in additional funding over 30 months.

Investor Verification Checklist

• Cash Runway: Verify the current cash balance against the projected burn rate to determine the timeline for the next required capital raise.
• Clinical Trial Status: Confirm the current status and enrollment numbers of the ongoing Phase II and Phase III trials for REOLYSIN®.
• Financing Terms: Review the specific terms of the February 2014 agreement with Lincoln Park Capital Fund, including pricing mechanisms and potential dilution.
• Regulatory Milestones: Monitor communications regarding FDA or Health Canada interactions and any updates on the Investigational New Drug (IND) applications.
• Contractual Obligations: Review the $6.0 million in purchase obligations for clinical trials and collaborations due in 2014.