ONCY

Business Context and Reporting Period

Oncolytics Biotech Inc. is a development-stage biotechnology company focused on developing REOLYSIN^®, an oncolytic virus for cancer therapy. This Form 6-K filing covers the three-month period ended March 31, 2006. The company has not been profitable since its inception and expects to continue incurring substantial losses as it advances clinical trials and manufacturing processes.

Key Financial Metrics

Note: Revenue consists entirely of interest income and income from short-term investments. The company has no product sales.

Material Changes vs. Prior Period

• Net Loss Increase: Net loss increased by approximately 26% to $2.99 million, driven primarily by higher Research and Development (R&D) and Operating expenses.
• R&D Expenses: Increased to $1.92 million from $1.63 million. This was due to a 117% increase in clinical trial expenses ($504k vs $232k) as the company enrolled patients in three ongoing trials compared to one in the prior year, and a significant rise in process development costs ($200k vs $37k) related to manufacturing scale-up.
• Operating Expenses: Rose to $1.12 million from $756k, largely due to increased investor relations activity and higher compensation levels.
• Cash Position: While cash and cash equivalents decreased, total cash resources (including short-term investments) increased due to investment income, though the company utilized $2.46 million from operating activities.

Guidance, Outlook, and Risks

Outlook and Guidance: Management estimates monthly cash usage will average $1.5 million for the remainder of 2006, an increase from the Q1 actuals. The company believes its current capital resources are sufficient to fund operations into 2008. The focus for the remainder of 2006 includes concluding patient enrollment in existing trials, filing applications for Phase II studies, and expanding manufacturing capacity.

Management Commentary: The company highlighted progress in understanding the interaction between REOLYSIN^® and the immune system. Interim results from the Phase I combination trial with radiation showed the treatment was well-tolerated with evidence of local and systemic tumor responses.

Risks and Contingencies:

• Development Risk: As a development-stage company, there is no assurance that REOLYSIN^® will prove safe or effective, or that regulatory approval will be obtained.
• Liquidity Risk: The company relies on raising additional capital, primarily through equity issuance, to fund future operations. Market volatility may impact the ability to raise funds.
• Forward-Looking Statements: Actual results may differ materially due to uncertainties in clinical trial success, manufacturing, and regulatory processes.

Key Facts for Investor Verification

• Cash Runway: Verify if the $37.7 million in total cash resources is sufficient to sustain the projected $1.5 million monthly burn rate through 2008 without additional financing.
• Clinical Trial Progress: Monitor the enrollment status and data readouts for the three ongoing clinical trials (two systemic monotherapy, one combination with radiation) and the commencement of the NCI solicitation for Phase II trials.
• Manufacturing Scale-Up: Confirm the success of process development efforts to improve yields and scale production, as this is critical for future trial supply and commercialization.
• Patent Portfolio: Note the issuance of two U.S. and one Canadian patent in Q1 2006, bringing the total issued patents to 22 (15 U.S., 5 Canadian, 2 European).
• Revenue Model: Acknowledge that current revenue is non-operating (interest income) and that significant product revenue is not expected until commercial viability is achieved.