Oncolytics Biotech Inc. Announces 2007 Third Quarter Results

CALGARY, Oct. 30 /PRNewswire-FirstCall/ - Oncolytics Biotech Inc. ("Oncolytics") (TSX:ONC, NASDAQ:ONCY) today announced its financial results and highlights for the three and nine-month periods ended September 30, 2007.

    Third Quarter Highlights

    -   Announced positive interim results from a U.K. Phase Ia/1b
        combination REOLYSIN(R) and radiation trial for patients with
        advanced cancers - including partial and remote responses in patients
        with a variety of advanced cancers;

    -   Commenced patient enrolment in a multi-centre, combination
        REOLYSIN(R) and docetaxel (Taxotere(R)) systemic administration trial
        in the U.K.;

    -   In October, received approval from the U.K. regulatory authorities to
        begin a combination REOLYSIN(R) and cyclophosphamide trial for
        patients with advanced cancers;

    -   Secured two additional U.S. patents, for a total of more than 150
        issued patents worldwide; and,

    -   Presented preclinical work at the National Cancer Research Institute
        Conference in Birmingham, U.K. demonstrating for the first time how
        reovirus-infected melanoma cells stimulate dendritic cells to prime
        the immune system against cancer cells.

"With positive results being reported from our clinical trial program in the U.K. and the U.S., seven trials actively enrolling, an additional combination trial approved to begin and an expanding intellectual property portfolio supporting our technology, Oncolytics is looking forward to making substantial progress through the balance of 2007 and 2008," said Dr. Brad Thompson, President and CEO of Oncolytics.


                           Oncolytics Biotech Inc.

                               BALANCE SHEETS
                                 (unaudited)

    As at,
                                                  September 30,  December 31,
                                                       2007          2006
                                                         $             $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                        3,326,374     3,491,511
    Short-term investments                          24,865,090    24,122,237
    Accounts receivable                                 36,637        84,003
    Prepaid expenses                                   413,811       638,540
    -------------------------------------------------------------------------
                                                    28,641,912    28,336,291

    Property and equipment                             169,226       149,596

    Intellectual property                            5,085,755     5,079,805
    -------------------------------------------------------------------------

                                                    33,896,893    33,565,692
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities         2,298,064     2,616,421
    -------------------------------------------------------------------------

    Alberta Heritage Foundation loan                         -       150,000
    -------------------------------------------------------------------------

    Shareholders' equity
    Share capital
      Authorized: unlimited number of common shares
      Issued: 41,120,748 (December 31, 2006 -
       36,520,748)                                  92,708,665    83,083,271
    Warrants                                         6,654,740     4,216,740
    Contributed surplus                              8,672,204     8,529,326
    Deficit                                        (76,436,780)  (65,030,066)
    -------------------------------------------------------------------------
                                                    31,598,829    30,799,271
    -------------------------------------------------------------------------

                                                    33,896,893    33,565,692
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                           Oncolytics Biotech Inc.

                  STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
                                 (unaudited)

                                                                 Cumulative
                                                                    from
                  Nine Month  Nine Month Three Month Three Month  inception
                    Period      Period      Period      Period   on April 2,
                    Ending      Ending      Ending      Ending     1998 to
                  September   September   September   September   September
                   30, 2007    30, 2006    30, 2007    30, 2006    30, 2007
                      $           $           $           $           $
    -------------------------------------------------------------------------

    Revenue
    Rights revenue         -           -           -           -     310,000
    -------------------------------------------------------------------------
                           -           -           -           -     310,000
    -------------------------------------------------------------------------

    Expenses
    Research and
     development   8,815,255   6,582,687   2,890,644   2,705,746  52,036,449
    Operating      2,798,630   2,789,647     880,158     766,618  19,569,211
    Stock-based
     compensation    142,878     293,880      38,909      34,671   4,308,527
    Foreign
     exchange
     loss/(gain)       2,829      (2,703)     18,917       5,129     651,677
    Amortization -
     intellectual
     property        713,887     647,893     244,299     220,774   4,750,721
    Amortization -
     property and
     equipment        30,061      43,379      10,197      12,685     437,744
    -------------------------------------------------------------------------
                  12,503,540  10,354,783   4,083,124   3,745,623  81,754,329
    -------------------------------------------------------------------------

    Loss before
     the
     following:   12,503,540  10,354,783   4,083,124   3,745,623  81,444,329

    Interest
     income         (946,826)   (947,364)   (319,223)   (320,454) (5,749,831)

    Gain on sale
     of BCY
     LifeSciences
     Inc.                  -           -           -           -    (299,403)

    Loss on sale of
     Transition
     Therapeutics
     Inc.                  -           -           -           -   2,156,685
    -------------------------------------------------------------------------

    Loss before
     taxes        11,556,714   9,407,419   3,763,901   3,425,169  77,551,780

    Future income
     tax recovery          -           -           -           -  (1,115,000)
    -------------------------------------------------------------------------

    Net loss and
     comprehensive
     loss for
     the period   11,556,714   9,407,419   3,763,901   3,425,169  76,436,780
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and
     diluted loss
     per share          0.29        0.26        0.09        0.09
    -------------------------------------------------------------
    -------------------------------------------------------------

    Weighted
     average
     number of
     shares
     (basic and
     diluted)     40,181,777  36,317,687  41,120,748  36,368,270
    -------------------------------------------------------------
    -------------------------------------------------------------



                           Oncolytics Biotech Inc.

                          STATEMENTS OF CASH FLOWS
                                 (unaudited)

                                                                  Cumulative
                                                                     from
                  Nine Month  Nine Month Three Month Three Month   inception
                    Period      Period      Period      Period    on April 2,
                    Ending      Ending      Ending      Ending      1998 to
                  September   September   September   September    September
                   30, 2007    30, 2006    30, 2007    30, 2006     30, 2007
                      $           $           $           $            $
    -------------------------------------------------------------------------
    OPERATING
     ACTIVITIES
    Net loss
     for the
     period     (11,556,714) (9,407,419) (3,763,901) (3,425,169) (76,436,780)
    Add/(deduct)
     non-cash
     items
      Amortization
       - intell-
       ectual
       property     713,887     647,893     244,299     220,774    4,750,721
      Amortization
       - property
       and
       equipment     30,061      43,379      10,197      12,685      437,744
      Stock-based
       compen-
       sation       142,878     293,880      38,909      34,671    4,308,527
      Other
       non-cash
       items              -           -           -           -    1,383,537
    Net changes
     in non-cash
     working
     capital       (179,975)    (34,485)    239,121     261,875    1,724,946
    -------------------------------------------------------------------------
                (10,849,863) (8,456,752) (3,231,375) (2,895,164) (63,831,305)
    -------------------------------------------------------------------------

    INVESTING
     ACTIVITIES
    Intellectual
     property      (586,124)   (552,319)    (99,066)   (187,283)  (6,085,404)
    Property and
     equipment      (49,691)    (29,342)    (11,386)     (8,294)    (673,039)
    Purchase of
     short-term
     investments   (742,853)   (801,358)   (255,688)   (261,480) (48,862,320)
    Redemption of
     short-term
     investments          -  10,158,000           -           -   23,578,746
    Investment
     in BCY
     LifeSciences
     Inc.                 -           -           -           -      464,602
    Investment in
     Transition
     Therapeutics
     Inc.                 -           -           -           -    2,532,343
    -------------------------------------------------------------------------
                 (1,378,668)  8,774,981    (366,140)   (457,057) (29,045,072)
    -------------------------------------------------------------------------

    FINANCING
     ACTIVITIES
    Proceeds from
     exercise of
     warrants
     and stock
     options              -     127,500           -      85,000   15,208,468
    Proceeds from
     private
     placements           -           -           -           -   38,137,385
    Proceeds from
     public
     offerings   12,063,394           -           -           -   42,856,898
    -------------------------------------------------------------------------
                 12,063,394     127,500           -      85,000   96,202,751
    -------------------------------------------------------------------------
    Increase
     (decrease)
     in cash
     and cash
     equivalents
     during
     the period    (165,137)    445,729  (3,597,515) (3,267,221)   3,326,374

    Cash and
     cash
     equivalents,
     beginning of
     the period   3,491,511   3,511,357   6,923,889   7,224,307            -
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of
     the period   3,326,374   3,957,086   3,326,374   3,957,086    3,326,374
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


         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 and nine months ended September 30, 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 our 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.

    See also "RISK FACTORS AFFECTING FUTURE PERFORMANCE" in our 2006 MD&A.

    REOLYSIN(R) Development Update for the Third 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 REOLYSIN(R) supply, and our intellectual property.

Clinical Trial Program

Our clinical trial program includes eight clinical trials of which seven are being conducted by us and one is being sponsored by the U.S. National Cancer Institute ("NCI"). In the third quarter of 2007, we announced positive interim results from our U.K. Phase Ia/Ib combination REOLYSIN(R) and radiation clinical trial. As well, we commenced patient enrollment in our U.K. combination REOLYSIN(R)/docetaxel clinical trial, increasing our actively enrolling clinical trials to seven.

Clinical Trial Results

In the third quarter of 2007, we announced positive interim results from our U.K. Phase Ia/Ib combination REOLYSIN(R) and radiation clinical trial for patients with advanced or metastatic cancers. As of September 28, 2007, 22 patients had been treated with 15 having completed the study. Five patients withdrew from the study, and two patients are still on study.

A total of 11 patients in the Ia portion of the trial have received two intratumoural treatments of REOLYSIN(R) at dosages of 1x10(8), 1x10(9), or 1x10(10) TCID(50) with a constant localized radiation dose of 20 Gy given in five fractions. Of these 11 patients, three patients (oesophageal, squamous skin carcinoma and squamous cell scalp) experienced significant partial responses.

One month following treatment, the oesophageal patient experienced a 28.5% reduction in the target tumour, with stable disease noted in four, non-treated tumours. At two and three months, the target tumour had shrunk 64%, with stable disease continuing in the four non-treated tumours, including a 15% volume reduction in non-treated mediastinal disease that was maintained for more than six months. The squamous skin cancer patient experienced a 50% reduction in the target tumour, as well as stable disease in two, non-treated tumours at one, two and three months post treatment. The squamous cell scalp patient experienced stable disease in the target tumour for two months which then became a partial response at three months. This patient also experienced stable disease in one non-treated tumour measured at three months post-treatment.

Patients in the Ib portion received either two, four or six intratumoural doses of REOLYSIN(R) at 1x10(10) TCID(50) with a constant localized radiation dose of 36 Gy given in 12 fractions. Of the six patients who have completed the study to date, three patients (colorectal, melanoma and lung cancer) experienced tumour regression in the target tumour, as well as stable disease in nontreated tumours.

The colorectal patient experienced a partial response with a more than 50% regression in the target tumour as well as stable disease in four, non-treated tumours measured at one month following treatment. A melanoma patient experienced minor regression in the target tumour as well as stable disease in two, non-treated tumours at one and two months following treatment. A lung cancer patient experienced minor regression in the target tumour, as well as stable disease in three, non-treated tumours at two months following treatment.

The treatment has been well tolerated, with mostly Grade 1 or 2 toxicities noted including fatigue, lymphopenia, fever, and neutropenia. Grade 3 toxicities including cellulitis, dysphasia and diarrhoea were related to disease progression and not to the combination treatment. Viral replication was unaffected by cellular irradiation.

The primary objective of the Phase Ia/Ib trial was to determine the maximum tolerated dose ("MTD"), dose limiting toxicity ("DLT"), and safety profile of REOLYSIN(R) when administered intratumourally to patients receiving radiation treatment. A secondary objective is to examine any evidence of anti-tumour activity. Eligible patients include those who have been diagnosed with late stage advanced or metastatic solid tumours that are refractory ("have not responded") to standard therapy or for which no curative standard therapy exists.

Clinical Trials - Actively Enrolling

At the end of the third quarter of 2007, we were actively enrolling in seven clinical trials. In the third quarter of 2007, we commenced enrollment in the following study:

U.K. Combination REOLYSIN(R) Docetaxel Clinical Trial

We commenced patient enrolment in our U.K. clinical trial to evaluate the anti-tumour effects of systemic administration of REOLYSIN(R) in combination with docetaxel (Taxotere(R)) in patients with advanced cancers including bladder, prostate, lung and upper gastro-intestinal. In preclinical studies, the combination of REOLYSIN(R) and various taxanes including docetaxel has been shown to be synergistic against a variety of cancer cell lines.

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, prostate, lung 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 MTD, 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.

Pre-Clinical Trial and Collaborative Program

In the third quarter of 2007, we announced that a poster presentation entitled "Reovirus Infection of Human Melanoma Cells Supports Priming of Anti-Tumour Cytotoxic T Cell Immunity" was presented by Dr. Robin Prestwich of CR-UK Clinical Centre, Leeds Institute of Molecular Medicine, University of Leeds, U.K. at the National Cancer Research Institute Cancer Conference in Birmingham, U.K.

In this study, the investigators infected melanoma cell lines with reovirus. The reovirus-infected cell lines stimulated the maturation of dendritic cells, which in turn educated cancer-killing T cells to attack and kill the melanoma cells.

Manufacturing and Process Development

We continued to have REOLYSIN(R) manufactured in order to supply our current and future clinical trial program. In the third quarter of 2007, our manufacturing activity was focused on the completion of the vial filling and packaging of the production runs that were completed earlier in 2007. Also in the third quarter of 2007, we continued process development that examined the scale up of our manufacturing process increasing the batch size from our present GMP scale of 20-litres to 40-litres and then to 100-litres.

Intellectual Property

In the third quarter of 2007, two U.S. patents were issued. At the end of the third quarter of 2007, we had been issued over 150 patents including 23 U.S. and six Canadian patents as well as issuances in other jurisdictions. We also have over 180 patent applications filed in the U.S., Canada and other jurisdictions.

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 nine months ending September 30, 2007 was $10,849,863 from operating activities and $635,815 for the purchases of intellectual property and capital assets which is in line with our estimate. Our net loss for the nine month period ending September 30, 2007 was $11,556,714.

Cash Resources

We exited the third quarter of 2007 with cash resources totaling $28,191,464 (see "Liquidity and Capital Resources").

Expected REOLYSIN(R) Development for the Remainder of 2007

We plan to continue to enroll patients in our seven clinical trials and expect to add an additional clinical co-therapy trial. We believe that the NCI sponsored melanoma clinical trial will receive approval to commence in 2007. We believe we will complete enrollment in our U.K. Phase Ia/Ib clinical trial by the end of 2007 and complete enrollment in our Phase II combination REOLYSIN(R)/radiation and chemotherapy co-therapy studies in 2008. Also, our process development activity will focus on scale up studies and the examination of a lyophilization process for REOLYSIN(R).

Based on our expected activity in 2007, we continue to estimate our average monthly cash usage to be $1,400,000 per month (see "Liquidity and Capital Resources").

Recent 2007 Progress

On October 23, 2007, we announced receipt of a letter of approval to commence our clinical trial using intravenous administration of REOLYSIN(R) in combination with cyclophosphamide, a chemotherapeutic agent as well as immune modulator, in patients with advanced cancers.

The trial is an open-label, dose-escalating, non-randomized trial of REOLYSIN(R) given intravenously with escalating doses of cyclophosphamide. A standard dose of REOLYSIN(R) is administered intravenously over five consecutive days, while an intravenous dose of cyclophosphamide is administered three days before REOLYSIN(R) treatment and continues through the course of the treatment cycle. The total number of patients studied will depend on the number of dose levels tested, but it is anticipated to be approximately 30 patients.

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 objectives of the trial include determining the Minimum Effective Immunomodulatory Dose of cyclophosphamide to obtain successful immune modulation. Secondary objectives include the safety profile of the combination and gathering any evidence of anti-tumour activity.

THIRD QUARTER RESULTS OF OPERATIONS

(for the three months ended September 30, 2007 and 2006)

Net loss for the three month period ending September 30, 2007 was $3,763,901 compared to $3,425,169 for the three month period ending September 30, 2006.

    Research and Development Expenses ("R&D")

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Manufacturing and related process
     development expenses                                 879,937  1,259,716
    Clinical trial expenses                             1,278,175    688,435
    Pre-clinical trial and research
     collaboration expenses                               293,785    301,165
    Other R&D expenses                                    438,747    456,430
    -------------------------------------------------------------------------
    Research and development expenses                   2,890,644  2,705,746
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

For the third quarter of 2007, R&D increased to $2,890,644 compared to $2,705,746 for the third quarter of 2006. The increase in R&D was due to the following:

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

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Product manufacturing expenses                        610,842    896,776
    Technology transfer expenses                                -    184,761
    Process development expenses                          269,095    178,179
    -------------------------------------------------------------------------
    Manufacturing and related process
     development expenses                                 879,937  1,259,716
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the third quarter of 2007, our M&P expenses decreased to $879,937 compared to $1,259,716 for the third quarter of 2006. In the third quarter of 2007, we continued to fill, test, and package the REOLYSIN(R) that was produced earlier in the year. During the third quarter of 2006, we commenced a number of cGMP production runs using our improved manufacturing process. The technology transfer of our improved process was successfully completed at the beginning of the third quarter of 2006.

Our process development studies in the third quarter of 2007 focused on increasing the scale of our production runs from batch sizes of 20 litres to 40 and then 100 litres. In the third quarter of 2006, we completed process development studies that were successful in improving virus yields.

    Clinical Trial Program

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Direct clinical trial expenses                      1,201,557    639,719
    Other clinical trial expenses                          76,618     48,716
    -------------------------------------------------------------------------
    Clinical trial expenses                             1,278,175    688,435
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the third quarter of 2007, our direct clinical trial expenses increased to $1,201,557 compared to $639,719 for the third quarter of 2006. In the third quarter of 2007, we incurred direct clinical trial expenses in our seven actively enrolling trials compared to only four enrolling trials in the third quarter of 2006.

    Pre-Clinical Trial Expenses and Research Collaborations

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Research collaboration expenses                       293,785    252,460
    Pre-clinical trial expenses                                 -     48,705
    -------------------------------------------------------------------------
    Pre-clinical trial expenses and
     research collaborations                              293,785    301,165
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the third quarter of 2007, our research collaboration expenses were $293,785 compared to $252,460 for the third quarter of 2006. Our research collaboration activity continues to focus on the interaction of the immune system and the reovirus, the use of the reovirus as a co-therapy with existing chemotherapeutics, and to investigate new uses of the reovirus as a therapeutic.

    Other Research and Development Expenses

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    R&D consulting fees                                    38,152     70,323
    R&D salaries and benefits                             342,155    299,224
    Other R&D expenses                                     58,440     86,883
    -------------------------------------------------------------------------
    Other research and development expenses               438,747    456,430
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Our R&D salaries and benefits costs were $342,155 in the third quarter of 2007 compared to $299,224 in the third quarter of 2006. The increase is a result of increases in salary and staff levels along with the addition of our Vice President of Intellectual Property in 2007.

    Operating Expenses

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Public company related expenses                       635,076    507,828
    Office expenses                                       245,082    258,790
    -------------------------------------------------------------------------
    Operating expenses                                    880,158    766,618
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the third quarter of 2007, our public company related expenses were $635,076 compared to $507,828 for the third quarter of 2006. In the third quarter of 2007, we increased our professional fees and investor relations activity in the United States and Europe compared to the third quarter of 2006.

    Stock Based Compensation

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Stock based compensation                               38,909     34,671
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Stock based compensation for the third quarter of 2007 was $38,909 compared to $34,671 for the third quarter of 2006. In the third quarters of 2007 and 2006, we incurred stock based compensation associated with the vesting of previously granted options.

YEAR TO DATE RESULTS OF OPERATIONS

(for the nine months ended September 30, 2007 and 2006)

Net loss for the nine month period ending September 30, 2007 was $11,556,714 compared to $9,407,419 for the nine month period ending September 30, 2006.

    Research and Development Expenses ("R&D")

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Manufacturing and related process
     development expenses                               3,546,732  2,751,207
    Clinical trial expenses                             2,983,688  1,920,467
    Pre-clinical trial and research
     collaboration expenses                               731,445    691,553
    Other R&D expenses                                  1,553,390  1,219,460
    -------------------------------------------------------------------------
    Research and development expenses                   8,815,255  6,582,687
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

For the nine month period ending September 30, 2007, R&D increased to $8,815,255 compared to $6,582,687 for 2006. The increase in R&D was due to the following:

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

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Product manufacturing expenses                      3,134,143  1,664,308
    Technology transfer expenses                                -    457,975
    Process development expenses                          412,589    628,924
    -------------------------------------------------------------------------
    Manufacturing and related process
     development expenses                               3,546,732  2,751,207
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Our M&P expenses for the nine month period ending September 30, 2007 increased to $3,546,732 compared to $2,751,207 in 2006. For the nine month period ending September 30, 2007, our production and vial filling activity increased compared to 2006. During this period of 2007, we completed production runs that commenced in 2006 and initiated additional production runs to manufacture REOLYSIN(R) at the beginning of 2007. Also, as a result of the increased viral yields from the process development activity in 2006, we have incurred additional vial filling and packaging costs compared to 2006.

For the nine month period ending September 30, 2006, we completed the production runs that were ongoing at the end of 2005 for our Phase I trials. At the same time, our process development activity helped improve the virus yields from our manufacturing process. These improvements were then transferred to our cGMP manufacturer with additional production runs initiated in the third quarter of 2006.

Our process development expenses for the nine month period ending September 30, 2007 were $412,589 compared to $628,924 for the nine month period ending September 30, 2006. During this period of 2007, our main process development focus has been on the scale up of our production process, which has included scale up studies at 40 and 100 litres. During the nine month period ending September 30, 2006, our process development activity included viral yield and scale up studies along with the validation of our fill process.

We still expect that our overall manufacturing and related process development expenses for 2007 will be in line with 2006. In the fourth quarter of 2007, we plan to initiate a 40-litre technology transfer, complete our 100-litre scale up studies and investigate the lyophilization of REOLYSIN(R). 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                      2,798,024  1,783,138
    Other clinical trial expenses                         185,664    137,329
    -------------------------------------------------------------------------
    Clinical trial expenses                             2,983,688  1,920,467
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the nine month period ending September 30, 2007, our direct clinical trial expenses were $2,798,024 compared to $1,783,138 for the nine month period ending September 30, 2006. In this period of 2007, we incurred direct patient costs in our seven ongoing clinical trials. As well, we incurred clinical site start up costs for our three co-therapy trials in the U.K. and our Phase II sarcoma clinical trial in the U.S. During the nine month period ending September 30, 2006, we incurred direct patient costs in four ongoing clinical trials along with clinical site start up costs associated with our U.S. recurrent malignant glioma and U.K. Phase Ia combination REOLYSIN(R)/radiation therapy trials.

We expect our clinical trial expenses will continue to increase for the remainder of 2007 compared to 2006 as we continue patient enrollment and expand our clinical trial program to include other trial sites and other studies.

    Pre-Clinical Trial Expenses and Research Collaborations

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Research collaboration expenses                       694,315    634,199
    Pre-clinical trial expenses                            37,130     57,354
    -------------------------------------------------------------------------
    Pre-clinical trial expenses and
     research collaborations                              731,445    691,553
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the nine month period ending September 30, 2007, our research collaboration expenses were $694,315 compared to $634,199 for the nine month period ending September 30, 2006. Our research collaboration activity continues to focus on the interaction of the immune system and the reovirus, the use of the reovirus as a co-therapy with existing chemotherapeutics, the use of new RAS active viruses as potential therapeutics, and to investigate new uses of the reovirus as a therapeutic.

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                                   180,043    134,650
    R&D salaries and benefits                           1,109,709    907,115
    Quebec scientific research and
     experimental development refund                      (15,927)   (52,344)
    Other R&D expenses                                    279,565    230,039
    -------------------------------------------------------------------------
    Other research and development expenses             1,553,390  1,219,460
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the nine month period ending September 30, 2007, our R&D consulting fees were $180,043 compared to $134,650 for the nine month period ending September 30, 2007. During this period of 2007, we incurred consulting activity associated with our ongoing clinical trials and assistance with our clinical trial applications. During this period of 2006, our consulting activity related to our ongoing clinical trials.

Our R&D salaries and benefits costs were $1,109,709 for the nine month period ending September 30, 2007 compared to $907,115 for the nine month period ending September 30, 2006. The increase is a result of increases in salary and staff levels along with the addition of our Vice President of Intellectual Property in 2007.

We still 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                     1,970,903  2,007,464
    Office expenses                                       827,727    782,183
    -------------------------------------------------------------------------
    Operating expenses                                  2,798,630  2,789,647
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the nine month period ending September 30, 2007, our public company related expenses were $1,970,903 compared to $2,007,464 for the nine month period ending September 30, 2006. In this period of 2007, our financial advisory expenses decreased compared to 2006. This decrease was offset by an increase in expenses associated with our investor relations activity in the U.S. and Europe and professional fees during the nine month period ending September 30, 2007 compared to 2006.

During the nine month period ending September 30, 2007, our office expenses were $827,727 compared to $782,183 for the nine month period ending September 30, 2006. Our office expense activity has remained consistent in 2007 to date compared to 2006 with increases mainly due to increased compensation levels and a general increase in office costs.

    Stock Based Compensation

                                                             2007       2006
                                                               $          $
    -------------------------------------------------------------------------
    Stock based compensation                              142,878    293,880
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Stock based compensation for the nine month period ending September 30, 2007 was $142,878 compared to $293,880 for the nine month period ending September 30, 2006. During this period of 2007, we incurred stock based compensation associated with the vesting of options previously granted. In 2006, we incurred stock based compensation associated with the issue and immediate vesting of stock options to our two newly appointed directors and the vesting of previously granted options.

Commitments

As at September 30, 2007, we are committed to payments totaling $1,162,000 for 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
    -------------------------------------------------------------------------
               Sept.   June   March     Dec.   Sept.   June   March     Dec.
    -------------------------------------------------------------------------
    Revenue        -       -       -       -       -       -       -       -
    -------------------------------------------------------------------------
    Interest
     income      319     359     268     286     320     335     292     160
    -------------------------------------------------------------------------
    Net
     loss(3),  3,764   3,680   4,156   4,890   3,425   2,988   2,995   3,941
    -------------------------------------------------------------------------
    Basic and
     diluted
     loss per
     common
     share(3)  $0.09   $0.09   $0.11   $0.13   $0.09   $0.08   $0.08   $0.12
    -------------------------------------------------------------------------
    Total
     assets
     (1),(4)  33,897  37,670  41,775  33,566  37,980  40,828  43,660  46,294
    -------------------------------------------------------------------------
    Total
     cash
     (2),(4)  28,191  31,533  35,681  27,614  31,495  34,501  37,687  40,406
    -------------------------------------------------------------------------
    Total
     long-term
     debt(5)       -       -       -     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 September 2007
        and October 2005 are quarterly stock based compensation expenses of
        $38,909, $82,573, $21,396, $109,670, $34,671, $222,376, $36,833, and
        $38,152, respectively.
    (4) We issued 4,600,000 common shares for net cash proceeds of
        $12,063,394 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
        September 30, 2007 interim financial statements).
    (6) We have not declared or paid any dividends since incorporation.


    LIQUIDITY AND CAPITAL RESOURCES

As at September 30, 2007, we had cash and cash equivalents (including short-term investments) and working capital positions of $28,191,464 and $26,343,848, 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 $12,063,394 offset by cash usage from operating activities and additions to our intellectual property of $10,849,863 and $586,124, 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 continue to enroll patients in our existing trials and we also expect 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, additional activities reducing our economic dependence on a single supplier, 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 $586,124 on intellectual property during the nine month period ending September 30, 2007 compared to $552,319 during the nine month period ending September 30, 2006. The change in intellectual property expenditures reflects the timing of filing costs associated with our expanded patent base. As well, we have benefited from a stronger Canadian dollar as our patent costs are typically incurred in U.S. currency. In the third quarter of 2007, two U.S. patents were issued bringing our total patents issued to 23 in the U.S. and six in Canada.

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 $24,865,090 invested under this policy and we are currently earning interest at an effective rate of 4.23% (2006 - 3.89%).

OTHER MD&A REQUIREMENTS

We have 41,120,748 common shares outstanding at October 29, 2007. If all of our warrants (4,972,000) and options (3,497,950) were exercised we would have 49,590,698 common shares outstanding.

Additional information relating to Oncolytics Biotech Inc. is available on SEDAR at www.sedar.com.

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.

SOURCE Oncolytics Biotech Inc.