Oncolytics Biotech Inc. Announces 2007 First Quarter Results



    CALGARY, April 27 /CNW/ - Oncolytics Biotech Inc. ("Oncolytics")
(TSX:ONC, NASDAQ:  ONCY) today announced its financial results and highlights
for the three month period ended March 31, 2007.

    First Quarter Highlights

    
    -   Received approval for two U.K. clinical trials; one investigating
        REOLYSIN(R) in combination with gemcitabine and the other
        investigating REOLYSIN(R) in combination with docetaxel;

    -   Presented results from a number of preclinical studies that show that
        the reovirus kills cancer cells directly, and also primes the immune
        system to fight cancer cells exposed to reovirus;

    -   Presented preclinical results at the 4th International Conference on
        Oncolytic Viruses as Cancer therapeutics in Carefree, Arizona,
        showing that reovirus has a synergistic effect when used in
        combination with cisplatin or cyclophosphamide;

    -   Appointed Ms. Mary Ann Dillahunty as Vice President, Intellectual
        Property;

    -   Closed a financing and over-allotment option that provided gross
        proceeds of $13.8 million to the Company;

    -   Secured two additional U.S. patents in the quarter, with a third
        issued just subsequent to the quarter end;

    -   In April 2007, announced the initiation of a U.S. Phase II sarcoma
        clinical trial; and,

    -   Presented preclinical results at the American Association for Cancer
        Research Annual Meeting in April showing the synergistic combination
        of reovirus and gemcitabine.

    "Oncolytics is pleased to have initiated its Phase II REOLYSIN(R) clinical
program both in the U.S. and the U.K.," said Dr. Brad Thompson, President and
CEO of Oncolytics. "We are looking forward to continuing to further expand our
clinical program in 2007."


    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                OF OPERATIONS
    

    This discussion and analysis should be read in conjunction with the
unaudited financial statements of Oncolytics Biotech Inc. as at and for the
three months ended March 31, 2007 and 2006, and should also be read in
conjunction with the audited financial statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations ("MD&A")
contained in our annual report for the year ended December 31, 2006. The
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP").

    FORWARD-LOOKING STATEMENTS

    The following discussion contains forward-looking statements, within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements, including our belief as to the potential of
REOLYSIN(R) as a cancer therapeutic and our expectations as to the success of
our research and development and manufacturing programs in 2007 and beyond,
future financial position, business strategy and plans for future operations,
and statements that are not historical facts, involve known and unknown risks
and uncertainties, which could cause our actual results to differ materially
from those in the forward-looking statements. Such risks and uncertainties
include, among others, the need for and availability of funds and resources to
pursue research and development projects, the efficacy of REOLYSIN(R) as a
cancer treatment, the success and timely completion of clinical studies and
trials, our ability to successfully commercialize REOLYSIN(R), uncertainties
related to the research, development and manufacturing of pharmaceuticals,
uncertainties related to competition, changes in technology, the regulatory
process and general changes to the economic environment. Investors should
consult our quarterly and annual filings with the Canadian and U.S. securities
commissions for additional information on risks and uncertainties relating to
the forward-looking statements. Forward-looking statements are based on
assumptions, projections, estimates and expectations of management at the time
such forward-looking statements are made, and such assumptions, projections,
estimates and/or expectations could change or prove to be incorrect or
inaccurate. Investors are cautioned against placing undue reliance on
forward-looking statements. We do not undertake to update these
forward-looking statements.

    OVERVIEW

    Oncolytics Biotech Inc. is a Development Stage Company

    Since our inception in April of 1998, Oncolytics Biotech Inc. has been a
development stage company and we have focused our research and development
efforts on the development of REOLYSIN(R), our potential cancer therapeutic.
We have not been profitable since our inception and expect to continue to
incur substantial losses as we continue research and development efforts. We
do not expect to generate significant revenues until, if and when, our cancer
product becomes commercially viable.

    GENERAL RISK FACTORS

    Prospects for biotechnology companies in the research and development
stage should generally be regarded as speculative. It is not possible to
predict, based upon studies in animals, or early studies in humans, whether a
new therapeutic will ultimately prove to be safe and effective in humans, or
whether necessary and sufficient data can be developed through the clinical
trial process to support a successful product application and approval.
    If a product is approved for sale, product manufacturing at a commercial
scale and significant sales to end users at a commercially reasonable price
may not be successful. There can be no assurance that we will generate
adequate funds to continue development, or will ever achieve significant
revenues or profitable operations. Many factors (e.g. competition, patent
protection, appropriate regulatory approvals) can influence the revenue and
product profitability potential.
    In developing a pharmaceutical product, we rely upon our employees,
contractors, consultants and collaborators and other third party
relationships, including the ability to obtain appropriate product liability
insurance. There can be no assurance that these reliances and relationships
will continue as required.
    In addition to developmental and operational considerations, market
prices for securities of biotechnology companies generally are volatile, and
may or may not move in a manner consistent with the progress being made by
Oncolytics.

    REOLYSIN(R) Development Update for the First Quarter of 2007

    We continue to develop our lead product REOLYSIN(R) as a possible cancer
therapy. Our goal each year is to advance REOLYSIN(R) through the various
steps and stages of development required for potential pharmaceutical
products. In order to achieve this goal, we actively manage the development of
our clinical trial program, our pre-clinical and collaborative programs, our
manufacturing process and supply, and our intellectual property.

    Clinical Trial Program

    We currently have six clinical trials ongoing of which three are actively
enrolling patients and three have been recently approved.

    Clinical Trials - Actively Enrolling

    During the first quarter of 2007, we continued to enroll patients in our
phase II and Phase Ib combination REOLYSIN(R)/radiation clinical trials in the
U.K. and in our Phase I/II recurrent malignant glioma clinical trial in the
U.S.

    Clinical Trials - Recently Approved to Commence

    Along with our U.K. REOLYSIN(R) in combination with paclitaxel and
carboplatin clinical trial, we received approval to commence two additional
co-therapy clinical trials in the U.K.

    U.K. REOLYSIN(R) in Combination with Docetaxel

    In the first quarter of 2007, we announced we had received a letter of
approval from the U.K. Medicines and Healthcare products Regulatory Agency
("MHRA") for our Clinical Trial Application ("CTA") to begin a clinical trial
using intravenous administration of REOLYSIN(R) in combination with docetaxel
(Taxotere(R)) in patients with advanced cancers including bladder, prostate,
lung and upper gastro-intestinal. The principal investigator is Professor
Hardev Pandha of The Royal Surrey Hospital, U.K. Docetaxel is used in patients
with lung, breast and prostate cancers, and is also used widely in the
treatment of many other types of cancers.
    The trial has two components. The first is an open-label,
dose-escalating, non-randomized study of REOLYSIN(R) given intravenously with
docetaxel every three weeks. A standard dosage of docetaxel will be delivered
with escalating dosages of REOLYSIN(R) intravenously. A maximum of three
cohorts will be enrolled in the REOLYSIN(R) dose escalation portion. The
second component of the trial will immediately follow and will include the
enrolment of a further 12 patients at the maximum dosage of REOLYSIN(R) in
combination with a standard dosage of docetaxel.
    Eligible patients include those who have been diagnosed with advanced or
metastatic solid tumours such as bladder, lung, prostate or upper
gastro-intestinal cancers that are refractory to standard therapy or for which
no curative standard therapy exists. The primary objective of the trial is to
determine the maximum tolerated dose ("MTD"), dose limiting toxicity ("DLT"),
recommended dose and dosing schedule and safety profile of REOLYSIN(R) when
administered in combination with docetaxel. Secondary objectives include the
evaluation of immune response to the drug combination, the body's response to
the drug combination compared to chemotherapy alone and any evidence of
anti-tumour activity.

    U.K. REOLYSIN(R) in Combination with Gemcitabine

    During the first quarter of 2007, we announced we had received a letter
of approval from the MHRA to begin a clinical trial using intravenous
administration of REOLYSIN(R) in combination with gemcitabine (Gemzar(R)) in
patients with advanced cancers including pancreatic, lung and ovarian. The
principal investigators are Dr. Johann de Bono of The Royal Marsden NHS
Foundation Trust and The Institute of Cancer Research, London and Professor
Jeff Evans of the University of Glasgow and the Beatson Oncology Centre in
Glasgow, Scotland. Gemcitabine is used in patients with lung, pancreatic and
ovarian cancers and is also used widely in the treatment of many other types
of cancers.
    This trial has two components. The first is an open-label,
dose-escalating, non-randomized study of REOLYSIN(R) given intravenously with
gemcitabine every three weeks. A standard dosage of gemcitabine will be
delivered with escalating dosages of REOLYSIN(R) intravenously. A maximum of
three cohorts will be enrolled in the REOLYSIN(R) dose escalation portion. The
second component of the trial will immediately follow and will include the
enrolment of a further 12 patients at the maximum dosage of REOLYSIN(R) in
combination with a standard dosage of gemcitabine.
    Eligible patients include those who have been diagnosed with advanced or
metastatic solid tumours including pancreatic, lung and ovarian cancers that
are refractory to standard therapy or for which no curative standard therapy
exists. The primary objective of the trial is to determine the MTD, DLT,
recommended dose and dosing schedule and safety profile of REOLYSIN(R) when
administered in combination with gemcitabine. Secondary objectives include the
evaluation of immune response to the drug combination, the body's response to
the drug combination compared to chemotherapy alone and any evidence of
anti-tumour activity.

    Pre-Clinical Trial and Collaborative Program

    In the first quarter of 2007, an oral presentation entitled "Reovirus as
a Potentially Immunogenic as well as Cytotoxic Therapy for Metastatic
Colorectal Cancer" was given by one of our collaborators, Dr. Sheila Fraser of
St. James's University Hospital in Leeds, U.K. The investigators tested
reovirus in vitro against recently resected colorectal cancer liver
metastases. The results showed that a significant proportion of tumour cell
cultures showed susceptibility to death following reovirus infection, and also
demonstrated effective replication of reovirus within these cells. In
addition, dendritic cells that prime the immune system to fight cancer cells
were activated by exposure to the reovirus. The investigators concluded that
the data supports the development of reovirus as a novel therapy for
colorectal cancer, with the potential to direct the immune system to target
cancer cells.
    During the first quarter of 2007, an abstract entitled "In Vivo Synergy
between Oncolytic Reovirus and Gemcitabine in Ras-Mutated Human HCT116
Xenografts" was made available on the American Association for Cancer Research
(AACR) website at www.aacr.org. The abstract covered preclinical work using
reovirus in combination with gemcitabine and showed the combination of
reovirus and gemcitabine was more effective than gemcitabine or reovirus alone
at killing human colon cancer cells in a mouse model.
    In March 2007, Professor Hardev Pandha of The Royal Surrey Hospital, U.K.
presented a poster entitled "Synergistic Antitumour Activity of Oncolytic
Reovirus and Cisplatin in Malignant Melanoma" at the 4th International
Conference on Oncolytic Viruses as Cancer Therapeutics in Carefree, Arizona.
The results of the preclinical study showed that the combination of reovirus
and cisplatin was significantly more effective than cisplatin or reovirus
alone at killing melanoma cancer cells in a mouse model. The investigators
concluded that the addition of chemotherapeutic agents can enhance the
efficacy of reovirus therapy.
    Finally in March 2007, Dr. Richard Vile of the Mayo College of Medicine,
Rochester, Minnesota delivered an oral presentation at the 4th International
Conference on Oncolytic Viruses as Cancer Therapeutics in Carefree, Arizona
that covered a study of systemic administration of reovirus in combination
with cyclophosphamide, an immune modulator. The work demonstrated that
systemic administration of reovirus in combination with cyclophosphamide
enhanced tumour regression in a melanoma animal model without increasing
toxicity. In addition, the investigators were able to demonstrate that the
addition of cyclophosphamide significantly increased the amount of reovirus
replicating within the tumour. The investigators concluded that the addition
of cyclophosphamide may lead to improved efficacy of REOLYSIN(R) treatment.

    Manufacturing and Process Development

    We continued to have REOLYSIN(R) manufactured in order to supply our
current and future clinical trial program. In the first quarter of 2007, we
contracted for additional cGMP ("current good manufacturing practices")
production runs. As well, we continued process development activity focused on
the potential scale up of our manufacturing process.

    Intellectual Property

    In the first quarter of 2007, two U.S. patents were issued. At the end of
the first quarter of 2007, we had been issued a total of 19 U.S., five
Canadian and three European patents. We also have other patent applications
filed in the U.S., Europe and Canada and other jurisdictions.

    Financing Activity

    During the first quarter of 2007, we issued 4,600,000 units at a price of
$3.00 per unit for net proceeds of $12,068,172. Each unit consisted of one
common share and one-half of one common share purchase warrant. Each whole
common share purchase warrant shall entitle the holder thereof to acquire one
common share upon payment of $3.50 expiring on February 22, 2010. The net
proceeds from this offering will be used for our clinical trial program,
manufacturing activities in support of the clinical trial program and for
general corporate purposes.

    Financial Impact

    We estimated at the beginning of 2007 that our monthly cash usage would
be approximately $1,400,000 for 2007. Our cash usage for the first quarter of
2007 was $3,747,709 from operating activities and $252,925 for the purchases
of intellectual property and capital assets which is in line with our
estimate. Our net loss for the first quarter of 2007 was $4,113,231.

    Cash Resources

    We exited the first quarter of 2007 with cash resources totaling
$35,681,286 (see "Liquidity and Capital Resources").

    Expected REOLYSIN(R) Development for the Remainder of 2007

    We believe that we will continue to expand our clinical trials to include
studies investigating REOLYSIN(R) as a monotherapy. As well, we expect to
commence enrollment in our co-therapy chemotherapy clinical trials in 2007 and
to continue to enroll patients in our other trials. We believe we will
complete enrollment in our U.K. Phase Ia/Ib and Phase II combination
REOLYSIN (R) /radiation clinical trials by the end of 2007 and complete
enrollment in our chemotherapy co-therapy studies in 2008. We expect to
produce REOLYSIN(R) in 2007 to supply our clinical trial program. We also plan
to complete our scale up studies in an effort to continue to improve our
manufacturing process.
    Based on our expected activity in 2007, we continue to estimate our
monthly cash usage to be $1,400,000 per month (see "Liquidity and Capital
Resources").

    Recent 2007 Progress

    U.S. Phase II Sarcoma Clinical Trial

    On April 11, 2007, we announced that subsequent to the regulatory review
period for this submission, we are proceeding with a Phase II trial to
evaluate the intravenous administration of REOLYSIN(R) in patients with
various sarcomas that have metastasized to the lung. The Principal
Investigators are Dr. Glenn S. Kroog of the Montefiore Medical Center/Albert
Einstein College of Medicine in the Bronx, New York, Dr. Laurence H. Baker of
the University of Michigan Comprehensive Cancer Center in Ann Arbor, and Dr.
Monica Mita of the Cancer Therapy and Research Center, Institute for Drug
Development in San Antonio, Texas.
    This trial is a Phase II, open-label, single agent study whose primary
objective is to measure tumour responses and duration of response, and to
describe any evidence of antitumour activity of intravenous, multiple dose
REOLYSIN(R) in patients with bone and soft tissue sarcomas metastatic to the
lung. REOLYSIN(R) will be given intravenously to patients at a dose of
3x10 (10) TCID (50) for five consecutive days. Patients may receive additional
five-day cycles of therapy every four weeks for a maximum of eight cycles. Up
to 52 patients will be enrolled in the study.
    Eligible patients must have a bone or soft tissue sarcoma metastatic to
the lung deemed by their physician to be unresponsive to, or untreatable by
standard therapies. These include patients with osteosarcoma, Ewing sarcoma
family tumours, malignant fibrous histiocytoma, synovial sarcoma, fibrosarcoma
and leiomyosarcoma.

    RESULTS OF OPERATIONS

    Net loss for the three month period ending March 31, 2007 was $4,113,231
compared to $2,994,536 for the three month period ending March 31, 2006.

    
    Research and Development Expenses ("R&D")

                                                           2007       2006
                                                             $          $
    -------------------------------------------------------------------------
    Manufacturing and related process
     development expenses                               1,838,193    843,141
    Clinical trial expenses                               721,617    546,767
    Pre-clinical trial expenses and collaborations        106,281    155,086
    Other R&D expenses                                    552,146    371,328
    -------------------------------------------------------------------------
    Research and development expenses                   3,218,237  1,916,322
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the first quarter of 2007, R&D increased to $3,218,237 compared to
$1,916,322 for the first quarter of 2006. The increase in R&D was due to the
following:

    Manufacturing & Related Process Development ("M&P")

                                                           2007       2006
                                                             $          $
    -------------------------------------------------------------------------
    Product manufacturing expenses                      1,748,417    643,423
    Process development expenses                           89,776    199,718
    -------------------------------------------------------------------------
    Manufacturing and related process development
     expenses                                           1,838,193    843,141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Our M&P expenses for the first quarter of 2007 increased to $1,838,193
compared to $843,141 for the first quarter of 2006.
    In the first quarter of 2007, our production and vial filling activity
increased compared to the first quarter of 2006. In the first quarter of 2007,
we commenced additional production runs to manufacture REOLYSIN(R). As well,
we incurred costs associated with the vialling of our production runs that
were completed at the end of 2006. In the first quarter of 2006, we were
completing the production runs that had started at the end of 2005.
    Our process development expenses for the first quarter of 2007 were
$89,776 compared to $199,718 for the first quarter of 2006. In the first
quarter of 2007, our main process development focus was on our scale up
studies. In the first quarter of 2006, our process development activity
included scale up studies and the validation of the fill process used in our
manufacturing process.
    We still expect that our overall manufacturing and related process
development expenses for 2007 will decrease compared to 2006. We expect to
complete our planned 2007 production runs in the third quarter of 2007. As
well, we expect to continue our process development activity that is examining
the potential scale up of our manufacturing process.
    We are also examining ways to reduce our economic dependence resulting
from having only a single cGMP manufacturer. This might include building up a
level of inventory, increasing the scale of each production run, engaging
another cGMP manufacturer or manufacturing REOLYSIN(R) ourselves. Depending on
how we mitigate our risk of economic dependence our expectation of our 2007
M&P expenses may change.

    
    Clinical Trial Program
                                                           2007       2006
                                                             $          $
    -------------------------------------------------------------------------
    Direct clinical trial expenses                        683,107    499,633
    Other clinical trial expenses                          38,510     47,134
    -------------------------------------------------------------------------
    Clinical trial expenses                               721,617    546,767
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the first quarter of 2007, our direct clinical trial expenses
increased to $683,107 compared to $499,633 for the first quarter of 2006. In
the first quarter of 2007, we incurred direct patient costs in our three
ongoing clinical trials along with start up costs associated with our three
U.K. co-therapy clinical trials that were approved to commence at the end of
2006 and at the beginning of 2007. In the first quarter of 2006, we incurred
direct patient costs in our three ongoing clinical trials.
    We still expect our clinical trial expenses in 2007 will increase
compared to 2006 as we expect to commence enrollment in our U.K. co-therapy
trials in 2007. As well, we expect to continue to expand our clinical trial
program to include additional Phase II trials.

    
    Pre-Clinical Trial Expenses and Research Collaborations

                                                           2007       2006
                                                             $          $
    -------------------------------------------------------------------------
    Research collaboration expenses                       106,281    155,086
    Pre-clinical trial expenses                                 -          -
    -------------------------------------------------------------------------
    Pre-clinical trial expenses and research
     collaborations                                       106,281    155,086
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the first quarter of 2007, our research collaboration expenses
were $106,281 compared to $155,086 for the first quarter of 2006. Our research
collaboration activity continues to focus on the interaction of the immune
system and the reovirus and the use of the reovirus as a co-therapy with
existing chemotherapeutics and radiation. As well, we will also examine the
use of new RAS active viruses as potential therapeutics and investigate new
uses of the reovirus in therapy.
    For the remainder of 2007, we still expect that pre-clinical trial
expenses and research collaborations will decline compared to 2006. We expect
to continue with our various collaborations in order to provide support for
our expanding clinical trial program. As well, we may expand our collaborative
activities to include other viruses.

    
    Other Research and Development Expenses

                                                           2007       2006
                                                             $          $
    -------------------------------------------------------------------------
    R&D consulting fees                                    91,776     32,955
    R&D salaries and benefits                             372,389    321,125
    Quebec scientific research and experimental
     development refund                                         -    (52,344)
    Other R&D expenses                                     87,981     69,592
    -------------------------------------------------------------------------
    Other research and development expenses               552,146    371,328
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the first quarter of 2007, our R&D consulting fees were $91,776
compared to $32,955 for the first quarter of 2006. In the first quarter of
2007, we incurred consulting activity associated with our ongoing clinical
trials and assistance with our clinical trial applications. In the first
quarter of 2006, our consulting activity related to our ongoing clinical
trials.
    Our R&D salaries and benefits costs were $372,389 in the first quarter of
2007 compared to $321,125 in the first quarter of 2006. The increase is a
result of increases in salary and staff levels along with the hiring of our
Vice President of Intellectual Property in 2007.
    We now expect that our other research and development expenses for the
remainder of 2007 will increase compared to 2006. We expect that salaries and
benefits will increase to reflect increased compensation levels and the salary
and benefit costs for our Vice President of Intellectual Property. Our R&D
consulting fees are expected to remain consistent with 2006. However, we may
choose to engage additional consultants to assist us in the development of
protocols and regulatory filings for our additional combination therapy and
phase II clinical trial studies, possibly causing our R&D consulting expenses
to increase.

    
    Operating Expenses
                                                           2007       2006
                                                             $          $
    -------------------------------------------------------------------------
    Public company related expenses                       581,876    834,720
    Office expenses                                       324,839    283,216
    -------------------------------------------------------------------------
    Operating expenses                                    906,715  1,117,936
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the first quarter of 2007, our public company related expenses
were $581,876 compared to $834,720 for the first quarter of 2006. In the first
quarter of 2006, we incurred financial advisory costs that were not incurred
in the first quarter of 2007.
    During the first quarter of 2007, our office expenses were $324,839
compared to $283,216 for the first quarter of 2006. Our office expense
activity has remained consistent in the first quarter of 2007 compared to the
first quarter of 2006 with increases mainly due to increased compensation
levels and a general increase in office costs.

    Commitments

    As at March 31, 2007, we are committed to payments totaling $1,623,000
during the remainder of 2007 for activities related to clinical trial activity
and collaborations. All of these committed payments are considered to be part
of our normal course of business.

    
    SUMMARY OF QUARTERLY RESULTS

    The following unaudited quarterly information is presented in thousands of
dollars except for per share amounts:


    -------------------------------------------------------------------------
                2007                2006                       2005
    -------------------------------------------------------------------------
               March    Dec.   Sept.    June   March    Dec.   Sept.    June
    -------------------------------------------------------------------------
    Revenue        -       -       -       -       -       -       -       -
    -------------------------------------------------------------------------
    Interest
     income      268     286     320     335     292     160     211     168
    -------------------------------------------------------------------------
    Net
     loss(3),  4,156   4,890   3,425   2,988   2,995   3,941   3,510   2,955
    -------------------------------------------------------------------------
    Basic
     and
     diluted
     loss per
     common
     share(3)  $0.11   $0.13   $0.09   $0.08   $0.08   $0.12   $0.11   $0.09
    -------------------------------------------------------------------------
    Total
     assets
    (1),(4)   41,775  33,566  37,980  40,828  43,660  46,294  34,538  38,081
    -------------------------------------------------------------------------
    Total
     cash
    (2),(4)   35,681  27,614  31,495  34,501  37,687  40,406  28,206  31,975
    -------------------------------------------------------------------------
    Total
     long-term
     debt(5)       -     150     150     150     150     150     150     150
    -------------------------------------------------------------------------
    Cash
     dividends
     declared(6) Nil     Nil     Nil     Nil     Nil     Nil     Nil     Nil
    -------------------------------------------------------------------------
    (1) Subsequent to the acquisition of Oncolytics Biotech Inc. by SYNSORB
        in April 1999, we applied push down accounting. See note 2 to the
        audited financial statements for 2006.
    (2) Included in total cash are cash and cash equivalents plus short-term
        investments.
    (3) Included in net loss and loss per common share between March 2007 and
        April 2004 are quarterly stock based compensation expenses of
        $64,167, $109,670, $34,671, $222,376, $36,833, $38,152, $4,173, and
        $8,404, respectively.
    (4) We issued 4,600,000 common shares for net cash proceeds of $12,068
        during 2007 (2006 - 284,000 common shares for cash proceeds of
        $241,400; 2005 - 4,321,252 common shares for cash proceeds of
        $18,789,596).
    (5) The long-term debt recorded represents repayable loans from the
        Alberta Heritage Foundation. On January 1, 2007, in conjunction with
        the adoption of the CICA Handbook section 3855 "Financial
        Instruments", this loan was recorded at fair value (see note 1 of the
        March 31, 2007 interim financial statements).
    (6) We have not declared or paid any dividends since incorporation.
    

    LIQUIDITY AND CAPITAL RE

SOURCES Liquidity As at March 31, 2007, we had cash and cash equivalents (including short-term investments) and working capital positions of $35,681,286 and $33,664,830, respectively compared to $27,613,748 and $25,719,870, respectively for December 31, 2006. The increase in 2007 reflects the cash inflow from financing activities of $12,068,172 offset by cash usage from operating activities and purchases of intellectual property of $3,747,709 and $218,177, respectively. We desire to maintain adequate cash and short-term investment reserves to support our planned activities which include our clinical trial program, product manufacturing, administrative costs, and our intellectual property expansion and protection. For the remainder of 2007, we are expecting to commence patient enrollment in our co-therapy trials and continue to enroll patients in our existing trials throughout 2007. We also expect to continue to expand our clinical trial program. As well we expect to continue with our collaborative studies pursuing support for our future clinical trial program. We will therefore need to ensure that we have enough REOLYSIN(R) to supply our clinical trial and collaborative programs. We continue to expect our cash usage in 2007 to be $1,400,000 per month and we believe our existing capital resources are adequate to fund our current plans for research and development activities well into 2009. Factors that will affect our anticipated monthly burn rate include, but are not limited to, the number of manufacturing runs required to supply our clinical trial program and the cost of each run, the number of clinical trials ultimately approved, the timing of patient enrollment in the approved clinical trials, the actual costs incurred to support each clinical trial, the number of treatments each patient will receive, the timing of the NCI's R&D activity, and the level of pre-clinical activity undertaken. In the event that we choose to seek additional capital, we will look to fund additional capital requirements primarily through the issue of additional equity. We recognize the challenges and uncertainty inherent in the capital markets and the potential difficulties we might face in raising additional capital. Market prices and market demand for securities in biotechnology companies are volatile and there are no assurances that we will have the ability to raise funds when required. Capital Expenditures We spent $218,177 on intellectual property in the first quarter of 2007 compared to $230,948 in the first quarter of 2006. The change in intellectual property expenditures reflects the timing of filing costs associated with our expanded patent base. In the first quarter of 2007, two U.S. patents were issued bringing our total patents issued to 19 in the U.S., five in Canada and three in Europe. Investing Activities Under our Investment Policy, we are permitted to invest in short-term instruments with a rating no less than R-1 (DBRS) with terms less than two years. We have $24,356,007 invested under this policy and we are currently earning interest at an effective rate of 4.08% (2006 - 3.56%). OTHER MD&A REQUIREMENTS We have 41,120,748 common shares outstanding at April 26, 2007. If all of our warrants (4,972,000) and options (3,537,950) were exercised we would have 49,630,698 common shares outstanding. Additional information relating to Oncolytics Biotech Inc. is available on SEDAR at www.sedar.com. Oncolytics Biotech Inc. BALANCE SHEETS (unaudited) As at March 31, December 31, 2007 2006 $ $ ------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents 11,325,279 3,491,511 Short-term investments (note 7) 24,356,007 24,122,237 Accounts receivable 50,948 84,003 Prepaid expenses 781,957 638,540 ------------------------------------------------------------------------- 36,514,191 28,336,291 Property and equipment 174,488 149,596 Intellectual property 5,086,290 5,079,805 ------------------------------------------------------------------------- 41,774,969 33,565,692 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities 2,849,361 2,616,421 ------------------------------------------------------------------------- Alberta Heritage Foundation loan (notes 1 and 8) - 150,000 ------------------------------------------------------------------------- Shareholders' equity Share capital (note 2) Authorized: unlimited number of common shares Issued: 41,120,748 (December 31, 2006 - 36,520,748) 92,713,443 83,083,271 Warrants (note 2) 6,654,740 4,216,740 Contributed surplus (note 4) 8,550,722 8,529,326 Deficit (notes 1 and 5) (68,993,297) (65,030,066) ------------------------------------------------------------------------- 38,925,608 30,799,271 ------------------------------------------------------------------------- 41,774,969 33,565,692 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes Oncolytics Biotech Inc. STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (unaudited) For the three month periods ended March 31, Cumulative from inception on April 2, 1998 to March 31, 2007 2006 2007 $ $ $ ------------------------------------------------------------------------- Revenue Rights revenue - - 310,000 ------------------------------------------------------------------------- - - 310,000 ------------------------------------------------------------------------- Expenses Research and development 3,218,237 1,916,322 46,439,431 Operating 906,715 1,117,936 17,677,296 Stock based compensation (note 3) 21,396 36,833 4,187,045 Foreign exchange loss (gain) (5,233) (10,051) 643,615 Amortization - intellectual property 230,992 210,440 4,267,826 Amortization - property and equipment 9,856 15,278 417,539 ------------------------------------------------------------------------- 4,381,963 3,286,758 73,632,752 ------------------------------------------------------------------------- 4,281,963 3,286,758 73,322,752 Interest income (268,732) (292,222) (5,071,737) Gain on sale of BCY LifeSciences Inc. - - (299,403) Loss on sale of Transition Therapeutics Inc. - - 2,156,685 ------------------------------------------------------------------------- Loss before taxes 4,113,231 2,994,536 70,108,297 Future income tax recovery - - (1,115,000) ------------------------------------------------------------------------- Net loss and comprehensive loss for the period 4,113,231 2,994,536 68,993,297 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted loss per share (0.11) (0.08) ----------------------------------------------------------- ----------------------------------------------------------- Weighted average number of shares (basic and diluted) 38,231,859 36,236,748 ----------------------------------------------------------- ----------------------------------------------------------- See accompanying notes Oncolytics Biotech Inc. STATEMENTS OF CASH FLOWS (unaudited) For the three month periods ended March 31, Cumulative from inception on April 2, 1998 to March 31, 2007 2006 2007 $ $ $ ------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss for the period (4,113,231) (2,994,536) (68,993,297) Deduct non-cash items Amortization - intellectual property 230,992 210,440 4,267,826 Amortization - property and equipment 9,856 15,278 417,539 Stock based compensation 21,396 36,833 4,187,045 Other non-cash items (note 6) - - 1,383,537 Net changes in non-cash working capital (note 6) 103,278 270,772 2,008,199 ------------------------------------------------------------------------- (3,747,709) (2,461,213) (56,729,151) ------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of intellectual property (218,177) (230,948) (5,717,457) Purchase of property and equipment (34,748) (27,381) (658,096) Purchase of short-term investments (233,770) (249,443) (48,353,237) Redemption of short-term investments - 5,900,000 23,578,746 Investment in BCY LifeSciences Inc. - - 464,602 Investment in Transition Therapeutics Inc. - - 2,532,343 ------------------------------------------------------------------------- (486,695) 5,392,228 (28,153,099) ------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from exercise of warrants and stock options - - 15,208,468 Proceeds from private placements - - 38,137,385 Proceeds from public offerings (note 2) 12,068,172 - 42,861,676 ------------------------------------------------------------------------- 12,068,172 - 96,207,529 ------------------------------------------------------------------------- Increase in cash and cash equivalents during the period 7,833,768 2,931,015 11,325,279 Cash and cash equivalents, beginning of the period 3,491,511 3,511,357 - ------------------------------------------------------------------------- Cash and cash equivalents, end of the period 11,325,279 6,442,372 11,325,279 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes Oncolytics Biotech Inc. NOTES TO FINANCIAL STATEMENTS March 31, 2007 (unaudited) 1. ACCOUNTING POLICIES These unaudited interim financial statements do not include all of the disclosures included in the Company's annual financial statements. Accordingly, these unaudited interim financial statements should be read in conjunction with the Company's most recent annual financial statements. The information as at and for the year ended December 31, 2006 has been derived from the Company's audited financial statements. The accounting policies used in the preparation of these unaudited interim financial statements conform with those used in the Company's most recent annual financial statements except the following: Adoption of New Accounting Policy Financial Instruments On January 1, 2007, the Company prospectively adopted, without restatement, CICA Handbook section 3855 "Financial Instruments - Recognition and Measurement" and section 1530 "Other Comprehensive Income". Pursuant to the transitional provisions of Section 3855, the Company classified its short-term investments as held-to-maturity fixed income securities and recorded its Alberta Heritage Foundation interest free loan at fair value. As a result, at the beginning of the year, there were no adjustments made to short-term investments or other comprehensive income and there was a decrease in the Alberta Heritage Foundation loan of $150,000 with a corresponding decrease of $150,000 in the Company's deficit. Financial Assets Financial assets comprise of cash and cash equivalents, accounts receivable (mainly goods and service tax receivable), and short-term investments. Cash and cash equivalents Cash and cash equivalents consist of cash on hand and balances with the Company's bank including interest bearing deposits. Short-term investments The Company determines the appropriate classification of its short-term investments at the time of purchase and reevaluates such designation as of each balance sheet date. Short-term investments can be classified as held-for-trading, available-for-sale or held-to-maturity. Currently, the Company has classified all its short-term investments as held-to-maturity as it has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at original cost, adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization and interest on securities classified as held-to-maturity are included in interest income. 2. SHARE CAPITAL Authorized: Unlimited number of common shares Issued: Shares Warrants ------------------------------------------------------------------------- Amount Amount Number $ Number $ ------------------------------------------------------------------------- Balance, December 31, 2005 36,236,748 82,841,871 2,784,800 4,429,932 Exercise of options 284,000 241,400 - - Expired warrants - - (112,800) (213,192) ------------------------------------------------------------------------- Balance, December 31, 2006 36,520,748 83,083,271 2,672,000 4,216,740 Issued for cash pursuant to February 22, 2007 public offering (a) 4,600,000 11,362,000 2,300,000 2,438,000 Share issue costs (1,731,828) - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Balance, March 31, 2007 41,120,748 92,713,443 4,972,000 6,654,740 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (a) Pursuant to a public offering, 4,600,000 units were issued at an issue price of $3.00 per unit for gross proceeds of $13,800,000. Each unit included one common share (ascribed value of $2.47) and one-half of one common share purchase warrant (ascribed value of $0.53) for a total of 2,300,000 warrants. Each whole common share purchase warrant entitles the holder to acquire one common share in the capital of the Company upon payment of $3.50 per share until February 22, 2010. Share issue costs for this offering were $1,731,828. The following table summarizes the weighted average assumptions used in the Black Scholes Model with respect to the valuation of warrants issued in the three month period ending March 31, 2007: 2007 ------------------------------------------------------------------------- Risk-free interest rate 4.08% Expected hold period to exercise 3 years Volatility in the price of the Company's shares 62.8% Dividend yield - ------------------------------------------------------------------------- There were no warrants issued during the three month period ending March 31, 2006. The following table summarizes the Company's outstanding warrants as at March 31, 2007: Weighted Average Remaining Outstanding, Granted Exercised Expired Contrac- Beginning During During During Outstanding, tual Exercise of the the the the End of Life Price Period Period Period Period Period (years) ------------------------------------------------------------------------- $3.50 - 2,300,000 - - 2,300,000 2.90 $5.65 320,000 - - - 320,000 1.75 $6.15 1,600,000 - - - 1,600,000 1.75 $8.00 752,000 - - - 752,000 0.65 ------------------------------------------------------------------------- 2,672,000 2,300,000 - - 4,972,000 2.12 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3. STOCK BASED COMPENSATION As the Company is following the fair value based method of accounting for stock options, the Company recorded compensation expense of $21,396 (March 31, 2006 - $36,833) for the period with respect to the vesting of options issued in prior periods with an offsetting credit to contributed surplus. On February 1, 2007, the Company granted 100,000 options with an exercise price of $3.28 (the market price at the date of grant) to its recently appointed Vice President of Intellectual Property. These options are conditional upon an increase in the Company's option pool which the Company presently expects to occur at the Annual General Meeting on May 2, 2007. As a result, no compensation expense has been recorded with respect to these options during the three month period ending March 31, 2007. 4. CONTRIBUTED SURPLUS Amount $ ------------------------------------------------------------------------- Balance, December 31, 2005 7,912,584 Expired warrants 213,192 Stock based compensation 403,550 Exercise of stock options - ------------------------------------------------------------------------- Balance, December 31, 2006 8,529,326 Stock based compensation 21,396 ------------------------------------------------------------------------- Balance, March 31, 2007 8,550,722 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. DEFICIT Amount $ ------------------------------------------------------------------------- Balance, December 31, 2005 50,732,542 Net loss for the year 14,297,524 ------------------------------------------------------------------------- Balance, December 31, 2006 65,030,066 Adjustment - Alberta Heritage Foundation loan (note 1) (150,000) Net loss and comprehensive loss, March 31, 2007 4,113,231 ------------------------------------------------------------------------- Balance, March 31, 2007 68,993,297 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6. ADDITIONAL CASH FLOW DISCLOSURE Net Change In Non-Cash Working Capital For the three month period ending March 31, Cumulative from inception on April 2, 1998 to March 31, 2007 2006 2007 $ $ $ ------------------------------------------------------------------------- Change in: Accounts receivable 33,055 (69,921) (50,948) Prepaid expenses (143,417) 12,772 (781,957) Accounts payable and accrued liabilities 232,940 323,454 2,849,361 ------------------------------------------------------------------------- Change in non-cash working capital 122,578 266,305 2,016,456 Net change associated with investing activities (19,300) 4,467 (8,257) ------------------------------------------------------------------------- Net change associated with operating activities 103,278 270,772 2,008,199 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other Non-Cash Items Cumulative from inception on April 2, 1998 to March 31, 2007 2006 2007 $ $ $ ------------------------------------------------------------------------- Foreign exchange loss - - 425,186 Donation of medical equipment - - 66,069 Loss on sale of Transition Therapeutics Inc. - - 2,156,685 Gain on sale of BCY LifeSciences Inc. - - (299,403) Cancellation of contingent payment obligation settled in common shares - - 150,000 Future income tax recovery - - (1,115,000) ------------------------------------------------------------------------- - - 1,383,537 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7. SHORT-TERM INVESTMENTS Short-term investments, mainly consisting of government of Canada treasury bills, are liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. The objectives for holding short-term investments are to invest the Company's excess cash resources in investment vehicles that provide a better rate of return compared to the Company's interest bearing bank account with limited risk to the principal invested. The Company also intends to match the maturities of these short-term investments with the cash requirements of the Company's activities. Effective Original Accrued Carrying Fair Interest Cost Interest Value Value Rate ------------------------------------------------------------------------- March 31, 2007 Short-term investments 24,136,102 219,905 24,356,007 24,354,521 4.08% ------------------------------------------------------------------------- ------------------------------------------------------------------------- December 31, 2006 ------------------------------------------------------------------------- Short-term investments 23,672,719 449,518 24,122,237 24,124,810 3.95% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Fair value is determined by using published market prices provided by the Company's investment advisor. 8. ALBERTA HERITAGE LOAN The Company received an interest free loan of $150,000 from the Alberta Heritage Foundation for Medical Research. Pursuant to the terms of the agreement, the Company is required to repay this amount in annual installments from the date of commencement of sales in an amount equal to the lesser of: (a) 5% of the gross sales generated by the Company; or (b) $15,000 per annum until the entire loan has been paid in full. 9. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current period's presentation. About Oncolytics Biotech Inc. Oncolytics is a Calgary-based biotechnology company focused on the development of oncolytic viruses as potential cancer therapeutics. Oncolytics' clinical program includes a variety of Phase I and Phase II human trials using REOLYSIN(R), its proprietary formulation of the human reovirus, alone and in combination with radiation or chemotherapy. For further information about Oncolytics, please visit www.oncolyticsbiotech.com. %SEDAR: 00013081E

For further information:

For further information: For Canada: Oncolytics Biotech Inc., Cathy
Ward, 210, 1167 Kensington Cr NW, Calgary, Alberta, T2N 1X7, Tel: (403)
670-7377, Fax: (403) 283-0858, cathy.ward@oncolytics.ca; For Canada: The
Equicom Group, Nick Hurst, 325, 300 5th Ave. SW, Calgary, Alberta, T2P 3C4,
Tel: (403) 538-4845, Fax: (403)237-6916, nhurst@equicomgroup.com; For United
States: The Investor Relations Group, Erika Moran, 11 Stone St, 3rd Floor, New
York, NY, 10004, Tel: (212) 825-3210, Fax: (212) 825-3229,
emoran@investorrelationsgroup.com


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