Edgar Filing: ONCOLYTICS BIOTECH INC

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For the month of October

Commission File Number 000-31062

Oncolytics Biotech Inc.

(Translation of registrant’s name into English)

Suite 210, 1167 Kensington Crescent NW
Calgary, Alberta, Canada T2N 1X7

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.


Form 20-F o		Form 40-F þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


Yes o		No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 -

TABLE OF CONTENTS


Signatures

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Oncolytics Biotech Inc. (Registrant)



Date: October 28, 2005	By:	/s/ Doug Ball Doug Ball Chief Financial Officer

Third Quarter Report

September 30, 2005

Oncolytics Biotech Inc.
TSX: ONC
NASDAQ: ONCY

THIRD QUARTER REPORT

For the quarter ended September 30, 2005

Letter to Shareholders

In the third quarter of 2005, Oncolytics significantly advanced its REOLYSIN^® clinical program, expanded its intellectual property position in Europe and Canada, and strengthened its management team with the appointment of Dr. Karl Mettinger.

Oncolytics’ clinical program has recently expanded and is currently enrolling patients in three clinical trials; our initial intravenous administration monotherapy studies in the UK and the USA, and our radiation cotherapy study in the UK. A fourth study, a recurrent malignant glioma monotherapy study, is approved in the US. Subsequent to the end of the quarter, we announced the conclusion of enrolment of our Canadian Phase I recurrent malignant glioma clinical trial.

In September, Oncolytics announced the appointment of Karl Mettinger, M.D., Ph.D. to the position of Chief Medical Officer. Dr. Mettinger has been involved with the clinical and regulatory approval of oncology, cardiovascular, and other products in the pharmaceutical industry for 20 years, including implementing clinical studies that enrolled more than 25,000 patients worldwide. As part of our senior medical and scientific management group which includes Dr. Gill and Dr. Coffey, Dr. Mettinger is expected to develop and implement the clinical trial program that best supports a registration path for REOLYSIN^®.

Oncolytics secured two new patents in the quarter, including a 2^nd European patent entitled ‘Method of Producing Infectious Reovirus’ and its first Canadian patent entitled ‘The use of ribozymes in the detection of adventitious agents.’ Subsequent to the quarter end, Oncolytics secured two additional Canadian patents that expand coverage for the use of REOLYSIN^®. These patents complement similar patent coverage in the U.S., Europe and worldwide.

With the increased activity in our clinical program, and the addition of Dr. Mettinger’s expertise in this area, we are well-positioned to further advance REOLYSIN^® through development.

I would like to thank our shareholders for their continued support and look forward to updating you.

Brad Thompson, PhD
President and CEO
Oct. 26, 2005

October 26, 2005

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. (“Oncolytics” or the “Company”) as at and for the three and nine months ended September 30, 2005 and 2004, 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 Oncolytics’ annual report for the year ended December 31, 2004. 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 the Company’s belief as to the potential of REOLYSIN^® as a cancer therapeutic, the Company’s expectation regarding the adequacy of its existing capital resources, and the Company’s expectations as to the success of its research and development programs in 2005 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 the Company’s actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue research and development projects, the efficacy of REOLYSIN^® as a cancer treatment, the success and timely completion of clinical studies and trials, the Company’s ability to successfully commercialize REOLYSIN^®, uncertainties related to the research and development of pharmaceuticals, uncertainties related to competition, changes in technology, the regulatory process and general changes to the economic environment. Investors should consult the Company’s 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. The Company does not undertake to update these forward-looking statements except as required by law.

OVERVIEW

Oncolytics Biotech Inc. is a Development Stage Company

Since its inception in April of 1998, Oncolytics has been a development stage company and has focused its research and development efforts on the development of REOLYSIN^®, its potential cancer therapeutic. The Company has not been profitable since its inception and expects to continue to incur substantial losses from its research and development. The Company does not expect to generate significant revenues until, if and when, its 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 the Company 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 product for approval, the Company will rely upon its 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 the Company.

Highlights

During the third quarter of 2005, the Company’s net loss was $3,509,503 compared to $3,096,042 for the third quarter of 2004. In the third quarter of 2005, the Company experienced increases in its clinical trial and manufacturing and related process development expenses. In the third quarter, the Company commenced patient enrollment in its U.S. systemic (intravenous) and U.K. combination radiation therapy clinical trials. The Company has five active clinical trial studies of which four are enrolling patients. In anticipation of these additional trials and the need to supply ongoing enrollment and research efforts, the Company has continued to manufacture REOLYSIN^® entering into multiple production supply contracts. Finally, the Company received two additional patents (one Canadian and one European) for a total of 13 U.S., two European, and one Canadian patents.

The Company exited the third quarter of 2005 with cash and cash equivalents (including short-term investments) of $28,206,326 compared to $33,919,223 as at December 31, 2004.

THIRD QUARTER RESULTS OF OPERATIONS
(for the three months ended September 30, 2005 and 2004)

Net loss for the three month period ended September 30, 2005 was $3,509,503 compared to $3,096,042 for 2004. The increase in the Company’s net loss in the third quarter of 2005 was due to increases in the Company’s operating activities as follows:

Research and Development Expenses (“R&D”)


	2005		2004
	$		$

Manufacturing and related process development expenses		1,767,524		1,160,983
Clinical trial expenses		372,825		184,347
Pre-clinical trial expenses and research collaborations		64,611		181,397
Other R&D expenses		613,103		705,654

Research and development expenses		2,818,063		2,232,381

For the third quarter of 2005, R&D increased to $2,818,063 compared to $2,232,381 for the third quarter of 2004. The increase in R&D was due to the following:

Manufacturing & Related Process Development Expenses (“M&P”)


	2005		2004
	$		$

Product manufacturing expenses		1,655,390		640,630
Technology transfer expenses		—		78,602
Process development expenses		112,134		441,751

Manufacturing and related process development expenses		1,767,524		1,160,983

During the third quarter of 2005, the Company’s product manufacturing expenses increased to $1,655,390 compared to $640,630 in the third quarter of 2004. The Company uses Cobra Biomanufacturing Plc (“Cobra”) to manufacture clinical material in order to supply its U.S. clinical trials and to ensure supply for future clinical trial activity. In the third quarter of 2005, in addition to the existing multiple production run supply contract, the Company entered into additional production run supply contracts. The Company presently anticipates that this manufacturing activity will continue into 2006.

In 2004, the Company entered into an agreement with Cobra to commence the manufacturing of REOLYSIN^® and therefore incurred expenses associated with the transfer of the Company’s manufacturing technology. This transfer was completed in 2004; consequently the Company did not incur technology transfer expenses in the third quarter of 2005.

During the third quarter of 2005, the Company incurred process development expenses of $112,134 compared to $441,751 in the third quarter of 2004. In the third quarter of 2005, the Company incurred process development costs associated with improving the process yields. Process development activity in 2004 was a result of the technology transfer to Cobra.

Clinical Trial Programs


	2005		2004
	$		$

Direct clinical trial expenses		372,825		184,347

During the third quarter of 2005, the Company’s direct clinical trial expenses increased to $372,825 compared to $184,347 in the third quarter of 2004. The Company has five ongoing clinical trials in 2005 compared to two clinical trials in 2004. Therefore, in the third quarter of 2005, the increase in direct clinical trial expenses reflects patient enrollment in the U.K. systemic (intravenous) and combination radiation therapy studies as well as other direct clinical trial costs associated with its two U.S. and Canadian studies.

Pre-Clinical Trial Expenses and Research Collaborations


	2005		2004
	$		$

Research collaboration expenses		64,611		122,816
Pre-clinical trial expenses		—		58,581

Pre-clinical trial expenses and research collaborations		64,611		181,397

During the third quarter of 2005, the Company’s research collaboration expenses were $64,611 compared to $122,816 for the third quarter of 2004. The Company incurs research collaboration expenses as it continues to investigate various characteristics and potential applications of the reovirus, such as the interaction of the immune system and the reovirus, the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation and the possibility of new uses for the reovirus in therapy. These expenses will fluctuate from period to period depending on the progress of these collaborations.

During the third quarter of 2005, the Company did not incur any preclinical trial expenses compared to $58,581 in the third quarter of 2004. The frequency of the Company’s pre-clinical studies change from period to period

as the Company moves through its clinical trial program. As well, depending on the results of the Company’s research collaborations, the Company may increase its pre-clinical trial activity.

Other R&D


	2005		2004
	$		$

Cancellation of contingent payment obligation		—		400,000
Other R&D		613,103		305,654

Other R&D		613,103		705,654

During the third quarter of 2004, the Company reduced its future contingent payment obligation by entering into an agreement that cancelled a portion of its future contingent obligation to one of its non-management founding shareholders for consideration of $400,000 (cash and shares). In the third quarter of 2005, there was no such activity.

Other R&D expenses include compensation expenses for employees (excluding stock based compensation) consulting fees, travel and other miscellaneous R&D expenses. In the third quarter of 2005, other R&D expenses were $613,103 compared to $305,654 for the third quarter of 2004. The increase in other R&D expenses mainly reflects an increase in consulting activity and related costs, costs associated with the activities of the scientific advisory board and employee compensation levels.

Operating Expenses


	2005		2004
	$		$

Public company related expenses		390,473		360,763
Office expenses		195,127		204,703

Operating expenses		585,600		565,466

For the third quarter of 2005, the Company’s operating expenses were $585,600 compared to $565,466 for the third quarter of 2004. The Company’s operating activities have remained consistent and therefore the related operating costs have remained stable.

Foreign Exchange Loss


	2005		2004
	$		$

Foreign exchange loss		97,997		239,881

The Company acquires investments in foreign currency to pay for anticipated expenses that are to be incurred in the United States (“U.S.”) and the United Kingdom (“U.K.”). As a result of recent movements in the U.S. and U.K. exchange rates the Company recorded a foreign exchange loss of $97,997 for the third quarter of 2005 compared to $239,881 for the third quarter of 2004.

YEAR TO DATE RESULTS OF OPERATIONS
(for the nine months ended September 30, 2005 and 2004)

Net loss for the nine month period ended September 30, 2005 was $8,841,272 compared to $8,964,166 for 2004. The decrease in the Company’s net loss was due to the following:

Research and Development Expenses (“R&D”)


	2005		2004
	$		$

Manufacturing and related process development expenses		3,584,430		3,361,014
Clinical trial expenses		1,154,677		433,139
Pre-clinical trial expenses and research collaborations		524,472		735,463
Other R&D expenses		1,235,455		1,153,096

Research and development expenses		6,499,034		5,682,712

For the nine month period ending September 30, 2005, R&D increased to $6,499,034 compared to $5,682,712 for 2004. The increase in R&D was due to the following:

Manufacturing & Related Process Development (“M&P”)


	2005		2004
	$		$

Product manufacturing expenses		3,406,588		2,215,007
Technology transfer expenses		—		535,800
Process development expenses		177,842		610,207

Manufacturing and related process development expenses		3,584,430		3,361,014

Production manufacturing expenses were $3,406,588 for the nine month period ending September 30, 2005 compared to $2,215,007 for the nine month period ending September 30, 2004. The Company has continued to focus on the production of REOLYSIN^® in order to supply its expanding clinical trial program along with other research activity. In the first part of 2005, the Company entered into a multiple cGMP (“good manufacturing practices”) production run supply contract with Cobra. In the third quarter of 2005, the Company continued to expand its cGMP production contracts by adding additional manufacturing runs. As well, the Company contracted Cobra to supply non-cGMP product to be used in non-human research and collaborative studies.

The Company expects that its product manufacturing expenses will continue to increase throughout the remainder of 2005. The balance of the Company’s current supply contracts with Cobra will be completed by the end of 2005 and it anticipates that additional production runs will be scheduled in order to ensure a supply of REOLYSIN^® for its existing and future clinical trial and collaborative programs.

Process development expenses were $177,842 for the nine month period ending September 30, 2005 compared to $610,207 for the nine month period ending September 30, 2004. In 2005, the Company has incurred process development costs associated with improving the process yields. Process development activity in 2004 was a result of the technology transfer to Cobra.

Clinical Trial Programs


	2005		2004
	$		$

Direct clinical trial expenses		1,154,677		433,139

Direct clinical trial expenses for the nine month period ending September 30, 2005 were $1,154,677 compared to $433,139 for the nine month period ending September 30, 2004. The Company’s clinical trial program has continued to expand in 2005 with the addition of three new clinical trial studies in 2005. As a result, direct clinical trial expenses continue to increase as patients are enrolled in the Company’s two systemic (intravenous) trials in the U.K. and U.S., the combination radiation therapy trial in the U.K. and the Canadian malignant glioma clinical trial. As well, the Company has incurred trial site initiation costs associated with the two U.S. clinical trial studies and the combination radiation therapy study in the U.K.

The Company expects its direct clinical trial expenses to continue to increase for the remainder of 2005. In the third quarter of 2005 patient enrollment commenced in the U.K. combination radiation therapy and the U.S. systemic (intravenous) clinical trials. As well, the Company expects that the U.S. malignant glioma trial will commence patient enrollment before the end of 2005.

Pre-Clinical Trial and Research Collaboration Expenses


	2005		2004
	$		$

Research collaboration expenses		427,719		172,546
Pre-clinical trial expenses		96,753		562,917

Pre-clinical trial expenses and research collaborations		524,472		735,463

Research collaboration expenses for the nine month period ending September 30, 2005 were $427,719 compared to $172,546 for the nine month period ending September 30, 2004. In 2005, the Company has expanded its research collaboration program to include studies investigating various characteristics and potential applications of the reovirus, such as the interaction of the immune system and the reovirus, the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation and the possibility of new uses for the reovirus in therapy. These expenses will fluctuate from period to period depending on the progress of these collaborations.

Pre-clinical trial expenses for the nine month period ending September 30, 2005 were $96,753 compared to $562,917 for the nine month period ending September 30, 2004. The frequency of the Company’s pre-clinical studies change from period to period as the Company moves through its clinical trial program. As well, depending on the results of the Company’s research collaborations, the Company may increase or decrease its pre-clinical trial activity.

Other R&D


	2005		2004
	$		$

Cancellation of contingent payment obligation		—		400,000
Other R&D		1,235,455		753,096

Other R&D		1,235,455		1,153,096

Other R&D expenses include compensation expenses for employees (excluding stock based compensation) consulting fees, travel and other miscellaneous R&D expenses. For the nine month period ending September 30, 2005, other R&D expenses were $1,235,455 compared to $753,906 for the nine month period ending September 30, 2004. The increase in other R&D expenses mainly reflects an increase in consulting activity and related costs, costs associated with the activities of the scientific advisory board and employee compensation levels.

Operating Expenses


	2005		2004
	$		$

Public company related expenses		1,484,605		1,472,261
Office expenses		626,822		640,622

Operating expenses		2,111,427		2,112,883

For the nine month period ending September 30, 2005, the Company’s operating expenses decreased to $2,111,427 compared to $2,112,883 for the nine month period ending September 30, 2004. The Company has not had to increase its administrative costs to support the increase in its research and development activity.

Stock Based Compensation


	2005		2004
	$		$

Stock based compensation		25,952		788,974

Stock based compensation recorded during the nine month period ending September 30, 2005 was $25,952 compared to $788,974 for the nine month period ending September 30, 2004. The decline has been a result of the reduction in the number of stock options granted in 2005 compared to 2004. As well, the options that were granted in 2004 vested immediately requiring compensation expense to be recorded on the grant date. The options that have been issued in 2005 vest over four years requiring compensation expense to be recorded over the vesting period.

Foreign Exchange Loss


	2005		2004
	$		$

Foreign exchange loss		198,481		353,964

The Company acquires investments in foreign currency to pay for anticipated expenses that are to be incurred in the United States (“U.S.”) and the United Kingdom (“U.K.”). As a result of recent movements in the U.S. and U.K. exchange rates the Company recorded a foreign exchange loss of $198,481 for the nine month period ending September 30, 2005 compared to $353,964 for the nine month period ending September 30, 2004.

Commitments

As at September 30, 2005, the Company has committed to payments totaling $1,818,500 for activities primarily related to product manufacturing and ongoing research collaborations. The Company anticipates that these committed payments will occur over the next twelve months. All of these committed payments are considered to be part of the Company’s normal course of business.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

As at September 30, 2005, the Company had cash and cash equivalents (including short-term investments) and working capital positions (current assets less current liabilities) of $28,206,326 and $27,778,367 respectively compared to $33,919,223 and $33,268,097 respectively for December 31, 2004. The decrease at September 30, 2005 reflects the Company’s cash outflows from research and development expenses, operational expenses, and intellectual property expenditures offset by cash inflows from the exercise of warrants and options that raised $3,384,787.

The Company desires to maintain adequate cash and short-term investment reserves to support its planned activities which include its clinical trial program, production manufacturing, and its intellectual property expansion and protection. The Company presently anticipates that its average cash usage for 2005 will be approximately $1,000,000 per month and its existing capital resources are adequate to fund its current plans for research and development activities through 2007. The Company continues to assess its clinical trial program and related manufacturing needs as further information becomes available. Any change in these activities would have implications on the Company’s cash requirements.

In the event that the Company chooses to seek additional capital, the Company will look to fund additional capital requirements primarily through the issue of additional equity. The Company recognizes the challenges and uncertainty inherent in the capital markets and the potential difficulties it might face in raising additional capital. Market prices and market demand for securities in biotechnology companies are volatile and there are no assurances that the Company would have the ability to raise funds when required.

Capital Expenditures

During the nine month period ending September 30, 2005, the Company spent $706,982 on intellectual property compared to $766,317 for the nine month period ending September 30, 2004. The difference relates to variances in filing fees on existing patent applications.

SUMMARY OF QUARTERLY RESULTS

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

2005

2004

2003

Sept.

June

March

Dec.

Sept.

June

March

Dec.

Revenue⁽¹⁾

211

168

245

205

194

183

117

127

Net loss^{(2), (5)}

3,510

2,955

2,377

3,992

3,096

3,192

2,676

1,696

Basic and diluted loss per common share^{(2), (5)}

0.11

0.09

0.07

0.14

0.11

0.10

0.06

Total assets^{(3), (6)}

34,538

38,081

40,519

39,489

29,471

31,221

25,435

26,051

Total cash^{(4), (6)}

28,206

31,975

34,713

33,919

23,806

25,522

20,298

20,753

Total long-term debt⁽⁷⁾

150

Cash dividends declared⁽⁸⁾

Nil


(1)		Revenue is comprised of interest income and income from short term investments.

(2)		Included in net loss and net loss per share between September 2005 and December 2003 is a quarterly gain (loss) on sale of investment of $nil, $nil, $765, $nil, ($12,817), ($646), $47,648, and $264,453, respectively.

(3)		Subsequent to the acquisition of the Company by SYNSORB in April 1999, the Company applied push down accounting. See note 2 to the audited financial statements for 2004.

(4)		Included in total cash are cash and cash equivalents plus short-term investments.

(5)		Included in net loss and loss per common share between June 2005 and September 2003 are quarterly stock based compensation expenses of $4,173, $8,404, $13,375, $1,870,596, $48,878, $734,670 $5,426, and $490,364, respectively.

(6)		The Company issued 1,121,252 common shares for cash proceeds of $3,384,787 in the nine months ending September 30, 2005 (2004 — 4,685,775 common shares for $23,495,961 and 2003 — 5,062,978 common shares for $16,004,981). In addition, 21,459 common shares were issued in September 2004 as partial consideration for the cancellation of a portion of the Company’s contingent payments (see note 9 to the audited financial statements for 2004).

(7)		The long-term debt recorded represents repayable loans from the Alberta Heritage Foundation.

(8)		The Company has not declared or paid any dividends since incorporation.

OTHER MD&A REQUIREMENTS

The Company has 33,036,748 common shares outstanding as at October 26, 2005. If all of the Company’s warrants and options were exercised the Company would have 37,536,098 common shares outstanding.

Financial Statements

Oncolytics Biotech Inc.

September 30, 2005

Oncolytics Biotech Inc.

BALANCE SHEETS
(unaudited)

As at,


	September 30,			December 31,
	2005			2004
	$			$

ASSETS
Current
Cash and cash equivalents		4,042,312			12,408,516
Short-term investments		24,164,014			21,510,707
Accounts receivable		48,450			47,767
Prepaid expenses		953,171			250,365

		29,207,947			34,217,355

Capital assets		5,330,483			5,259,286

Investments *[note 4]*		—			12,000

		34,538,430			39,488,641

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities		1,429,580			949,258

Alberta Heritage Foundation loan		150,000			150,000


Shareholders’ equity
Share capital [note 2]
Authorized: unlimited
Issued: 33,036,748 common shares (December 31, 2004 — 31,915,496 common shares)		70,825,980			66,643,325
Warrants [note 2]		2,549,762			3,347,630
Contributed surplus [note 3]		6,375,091			6,349,139
Deficit		(46,791,983	)		(37,950,711	)

		32,958,850			38,389,383


		34,538,430			39,488,641

See accompanying notes

Oncolytics Biotech Inc.

STATEMENTS OF LOSS AND DEFICIT
(unaudited)


												Cumulative from
												inception
	Nine Month			Nine Month			Three Month			Three Month		on April 2,
	Period Ending			Period Ending			Period Ending			Period Ending		1998 to
	September 30,			September 30,			September 30,			September 30,		September 30,
	2005			2004			2005			2004		2005
	$			$			$			$		$

Revenue
Rights revenue		—			—			—			—		310,000
Interest income		623,615			494,816			210,978			194,001		3,409,355

		623,615			494,816			210,978			194,001		3,719,355

Expenses
Research and development		6,499,034			5,682,712			2,818,063			2,232,381		29,940,562
Operating		2,111,427			2,112,883			585,600			565,466		12,202,221
Stock based compensation [note 3]		25,952			788,974			4,173			48,878		3,723,947
Foreign exchange loss		198,481			353,964			97,997			239,881		558,451
Amortization		632,283			554,476			216,173			190,620		3,294,129

		9,467,177			9,493,009			3,722,006			3,277,226		49,719,310


Loss before the following:		8,843,562			8,998,193			3,511,028			3,083,225		45,999,955

(Gain) loss on sale and write down of BCY LifeSciences Inc. *[note 4]*		(765	)		(34,185	)		—			12,817		(299,403	)

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


Loss before taxes		8,842,797			8,964,008			3,511,028			3,096,042		47,857,237

Capital tax (recovery)		(1,525	)		158			(1,525	)		—		49,746

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


Net loss for the period		8,841,272			8,964,166			3,509,503			3,096,042		46,791,983

Deficit, beginning of period		37,950,711			24,994,592			43,282,480			30,862,716		—


Deficit, end of period		46,791,983			33,958,758			46,791,983			33,958,758		46,791,983


Basic and diluted loss per share		0.27			0.31			0.11			0.11


Weighted average number of shares		32,702,843			28,552,643			32,983,922			29,448,859

See accompanying notes

Oncolytics Biotech Inc.

STATEMENTS OF CASH FLOWS
(unaudited)


													Cumulative from
													inception on
	Nine Month			Nine Month Period			Three Month Period			Three Month Period			April 2,
	Period Ending			Ending September			Ending September			Ending September			1998 to September
	September 30, 2005			30, 2004			30, 2005			30, 2004			30, 2005
	$			$			$			$			$

OPERATING ACTIVITIES
Net loss for the period		(8,841,272	)		(8,964,166	)		(3,509,503	)		(3,096,042	)		(46,791,983	)
Deduct non-cash items
Amortization		632,283			554,476			216,173			190,620			3,294,129
Non-cash compensation		25,952			788,974			4,173			48,878			3,723,947
Foreign exchange loss		74,555			353,964			35,905			239,881			340,537
Cancellation of contingent payment obligation settled in common shares		—			150,000			—			150,000			150,000
(Gain) loss on sale and write down of BCY LifeSciences Inc.		(765	)		(34,185	)		—			12,817			(299,403	)
Loss on sale of Transition Therapeutics Inc.		—			—			—			—			2,156,685
Future income tax recovery		—			—			—			—			(1,115,000	)
Net changes in non-cash working capital		(188,531	)		198,946			(297,460	)		633,728			319,702

		(8,297,778	)		(6,951,991	)		(3,550,712	)		(1,820,118	)		(38,221,386	)

INVESTING ACTIVITIES
Intellectual property		(706,982	)		(766,317	)		(242,223	)		(340,389	)		(4,330,617	)
Other capital assets		(31,134	)		(8,793	)		(15,914	)		(900	)		(557,336	)
Purchase of short-term investments		(5,470,458	)		(6,602,415	)		(136,620	)		(187,231	)		(30,359,245	)
Redemption of short-term investments		2,747,396			3,114,000			—			1,114,000			5,861,396
Investment in BCY LifeSciences Inc.		7,965			133,609			—			—			464,602
Investment in Transition Therapeutics Inc.		—			—			—			—			2,532,343

		(3,453,213	)		(4,129,916	)		(394,757	)		585,480			(26,388,857	)

FINANCING ACTIVITIES
Alberta Heritage Foundation loan		—			—			—			—			150,000
Proceeds from exercise of warrants and stock options		3,384,787			4,717,914			76,500			676,893			14,967,068
Proceeds from private placements		—			6,223,763			—			—			22,741,983
Proceeds from public offerings		—			—			—			—			30,793,504

		3,384,787			10,941,677			76,500			676,893			68,652,555

(Decrease) increase in cash and cash equivalents during the period		(8,366,204	)		(140,230	)		(3,868,969	)		(557,745	)		4,042,312

Cash and cash equivalents, beginning of the period		12,408,516			2,641,127			7,911,281			3,058,642			—


Cash and cash equivalents, end of the period		4,042,312			2,500,897			4,042,312			2,500,897			4,042,312

See accompanying notes

Oncolytics Biotech Inc.

NOTES TO FINANCIAL STATEMENTS

September 30, 2005 (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, 2004 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.

2. SHARE CAPITAL

Authorized:

Unlimited number of common shares


Issued:	Shares					Warrants
			Amount						Amount
	Number		$			Number			$

Balance, December 31, 2003		27,208,262		44,712,589			3,258,155			1,598,250

Issued for cash pursuant to April 7, 2004 private placement		1,077,100		5,924,050			646,260			1,028,631

Issued for cash pursuant to pursuant to November 23, 2004 public offering		1,504,000		8,693,120			864,800			1,521,672

Issued pursuant to cancellation of contingent payment		21,459		150,000			—			—

Exercise of warrants		1,907,175		8,178,546			(1,907,175	)		(798,096	)

Expired warrants		—		2,827			(6,700	)		(2,827	)

Exercise of options		197,500		778,951			—			—

Share issue costs		—		(1,796,758	)		—			—


Balance, December 31, 2004		31,915,496		66,643,325			2,855,340			3,347,630

Exercise of options		350,000		297,500			—			—

Exercise of warrants		771,252		3,417,271			(771,252	)		(329,984	)

Expired warrants		—		467,884			(573,028	)		(467,884	)


Balance September 30, 2005		33,036,748		70,825,980			1,511,060			2,549,762

Oncolytics Biotech Inc.

NOTES TO FINANCIAL STATEMENTS

September 30, 2005 (unaudited)

The following table summarizes the Company’s outstanding warrants as at September 30, 2005:


											Weighted
											Average
	Outstanding,		Granted		Exercised		Expired				Remaining
	Beginning of		During the		During the		During the		Outstanding,		Contractual
Exercise Price	the Period		Period		Period		Period		End of Period		Life (years)

$4.00		768,972		—		768,972		—		—		—
$5.00		45,558		—		2,280		43,278		—		—
$6.25		529,750		—		—		529,750		—		—
$7.00		107,710		—		—		—		107,710		0.02
$7.06		112,800		—		—		—		112,800		0.65
$7.75		538,550		—		—		—		538,550		0.02
$8.00		752,000		—		—		—		752,000		2.15

		2,855,340		—		771,252		573,028		1,511,060		1.17

3. STOCK BASED COMPENSATION

Stock Option Plan

The Company has issued stock options to acquire common stock through its stock option plan of which the following are outstanding:

September 30, 2005

September 30, 2004

Weighted Average

Share Price

Stock Options

Outstanding at beginning of period

3,805,550

4.39

2,800,800

3.81

Granted during period

200,000

3.18

284,500

7.66

Cancelled during period

(21,000

)

4.95

—

Exercised during period

(350,000

)

0.85

(197,500

)

2.31

Outstanding at end of period

3,634,550

4.48

2,887,800

4.12

Options exercisable at end of period

3,387,050

4.77

2,783,133

4.19

Oncolytics Biotech Inc.

NOTES TO FINANCIAL STATEMENTS

September 30, 2005 (unaudited)

The following table summarizes information about the stock options outstanding and exercisable at September 30, 2005:


			Weighted		Weighted				Weighted
			Average		Average				Average
			Remaining		Exercise				Exercise
Range of	Number		Contractual		Price		Number		Price
Exercise Prices	Outstanding		Life (years)		$		Exercisable		$

$0.75 - $1.00		632,550		4.1		0.85		632,550		0.85
$1.65 - $2.37		281,000		7.2		1.85		246,000		1.87
$2.70 - $3.33		678,750		8.1		3.10		478,750		3.06
$4.00 - $5.00		1,190,750		9.0		4.89		1,178,250		4.89
$6.77 - $9.76		708,500		6.4		8.66		708,500		8.66
$12.15 - $13.50		143,000		5.1		12.63		143,000		12.63

		3,634,550		6.6		4.48		3,387,050		4.77

As the Company is following the fair value based method of accounting for stock options, the Company recorded compensation expense of $4,173 and $25,952 for the three and nine month periods ending September 30, 2005 respectively, (September 30, 2004 — $48,878 and $788,974 respectively) with respect to the vesting of options issued in prior periods with an offsetting credit to contributed surplus.

The estimated fair value of stock options issued during the period was determined using the Black-Scholes model using the following weighted average assumptions and fair value of options:


	2005		2004

Risk-free interest rate		3.27%		2.83%
Expected hold period to exercise	3.5 years		2 years
Volatility in the price of the Company’s shares		64%		71%
Dividend yield	Zero		Zero
Weighted average fair value of options		$1.51		$2.26

In 2002, the Company granted 48,000 share incentive rights to a non-employee which, when exercised by the holder, would require payment in cash or shares, at the sole option of the Company for amounts in excess of $2.31 based on the weighted average trading price for the ten trading days prior to the exercise. The Company accounted for this transaction with a non-employee at fair value determined using the Black-Scholes model. The related compensation expense recorded in 2003 was $81,530, with an offsetting credit to contributed surplus. During the third quarter of 2005, these share incentive rights were surrendered. In accordance with generally accepted accounting principles, no credit to expense was recorded as a result of the surrender.

Oncolytics Biotech Inc.

NOTES TO FINANCIAL STATEMENTS

September 30, 2005 (unaudited)

4. INVESTMENTS

During the three and nine month periods ending September 30, 2005, the Company sold nil and 120,000 (September 30, 2004 — nil and 697,945) of its BCY LifeSciences Inc. (“BCY”) shares for net cash proceeds of $nil and $7,965 (September 30, 2004 — nil and $133,609) recording a gain on sale (write down) of investment of $nil and $765 (September 30, 2004 — ($12,817) and $34,815), respectively. As at September 30, 2005, the Company still owned 80,000 common shares of BCY with a book value of $4,800. These common shares will be released from escrow in February 2006; consequently the remaining investment in BCY has been reclassified as a short-term investment.

5. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the current period’s presentation.

6. SUBSEQUENT EVENT

On October 7, 2005, 538,550 warrants with an exercise price of $7.75 and 107,710 broker warrants with an exercise price of $7.00 expired unexercised. These warrants were issued as part of the Company’s April 7, 2004 private placement.

Shareholder Information

For public company filings please go to www.sedar.com or contact us at:

Oncolytics Biotech Inc.
Suite 210, 1167 Kensington Crescent NW
tel: 403.670.7377 fax: 403.283.0858
Calgary, Alberta, Canada T2N 1X7
www.oncolyticsbiotech.com

Officers

Brad Thompson, PhD
Chairman, President and CEO
Doug Ball, CA
Chief Financial Officer
Matt Coffey, PhD
Chief Scientific Officer
Karl Mettinger, MD, PhD
Chief Medical Officer
George Gill, MD
Senior Vice President, Clinical and Regulatory Affairs

Directors

Brad Thompson, PhD
Chairman, President and CEO, Oncolytics Biotech Inc.
Doug Ball, CA
CFO, Oncolytics Biotech Inc.
William. A. Cochrane, OC, MD
Biotech Consultant
Jim Dinning
Chairman, Western Financial Group
J. Mark Lievonen, CA
President, Sanofi Pasteur Limited
Tony Noujaim, PhD
CEO and Chairman, ViRexx Medical Corp.
Bob Schultz, FCA
Chairman, Rockwater Capital Corporation
Fred Stewart, QC
President, Fred Stewart and Associates Inc.

Oncolytics Biotech Inc.
Suite 210, 1167 Kensington Crescent NW, Calgary, AB T2N 1X7
Phone: (403) 670.7377 Fax: (403) 283.0858
www.oncolyticsbiotech .com

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