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 2007

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 -

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 30, 2007	By:	/s/ Doug Ball Doug Ball Chief Financial Officer

210, 1167 Kensington Crescent N.W.
Calgary, Alberta
Canada T2N 1X7

FOR IMMEDIATE RELEASE

Oncolytics Biotech Inc. Announces 2007 Third Quarter Results

CALGARY, AB, — October 30, 2007 - 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^® 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^® and docetaxel (Taxotere^®) systemic administration trial in the U.K.;

	•		In October, received approval from the U.K. regulatory authorities to begin a combination REOLYSIN^® 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			December 31,
	30, 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
	Nine Month			Nine Month			Three Month			Three Month			from inception
	Period			Period			Period			Period			on April 2,
	Ending			Ending			Ending			Ending			1998 to
	September			September			September			September			September 30,
	30, 2007			30, 2006			30, 2007			30, 2006			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
							Three Month			Three Month			from inception
	Nine Month			Nine Month			Period			Period			on April 2,
	Period Ending			Period Ending			Ending			Ending			1998 to
	September 30,			September 30,			September			September			September 30,
	2007			2006			30, 2007			30, 2006			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 – 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
Stock-based compensation		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^® 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^® as a cancer treatment, the success and timely completion of clinical studies and trials, our ability to successfully commercialize REOLYSIN^®, 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^®, 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^® Development Update for the Third Quarter of 2007

We continue to develop our lead product REOLYSIN^® as a possible cancer therapy. Our goal each year is to advance REOLYSIN^® 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^® 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^® and radiation clinical trial. As well, we commenced patient enrollment in our U.K. combination REOLYSIN^®/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^® 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^® at dosages of 1x10⁸, 1x10⁹, or 1x10¹⁰ TCID₅₀ 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^® at 1x10¹⁰ TCID₅₀ 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 non-treated 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^® 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^® Docetaxel Clinical Trial

We commenced patient enrolment in our U.K. clinical trial to evaluate the anti-tumour effects of systemic administration of REOLYSIN^® in combination with docetaxel (Taxotere^®) in patients with advanced cancers including bladder, prostate, lung and upper gastro-intestinal. In preclinical studies, the combination of REOLYSIN^® 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^® given intravenously with docetaxel every three weeks. A standard dosage of docetaxel will be delivered with escalating dosages of REOLYSIN^® intravenously. A maximum of three cohorts will be enrolled in the REOLYSIN^® 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^® 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^® 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^{^®}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^® 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^®/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^®.

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^® 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^® given intravenously with escalating doses of cyclophosphamide. A standard dose of REOLYSIN^® is administered intravenously over five consecutive days, while an intravenous dose of cyclophosphamide is administered three days before REOLYSIN^® 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^® 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^® 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^®. 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^® 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^® /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^® 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^®, 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.

FOR FURTHER INFORMATION PLEASE CONTACT:


*For Canada:*	*For Canada:*	*For United States:*
Oncolytics Biotech Inc.	The Equicom Group	The Investor Relations Group
Cathy Ward	Nick Hurst	Erika Moran
210, 1167 Kensington Cr NW	325, 300 5^th Ave. SW	11 Stone St, 3rd Floor
Calgary, Alberta T2N 1X7	Calgary, Alberta T2P 3C4	New York, NY 10004
Tel: 403.670.7377	Tel: 403.538.4845	Tel: 212.825.3210
Fax: 403.283.0858	Fax: 403.237.6916	Fax: 212.825.3229
cathy.ward@oncolytics.ca	nhurst@equicomgroup.com	emoran@investorrelationsgroup.com

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