Dr. Brad Thompson reports

ONCOLYTICS BIOTECH INC. ANNOUNCES 2011 YEAR END RESULTS

Oncolytics Biotech Inc. has released its financial results and operational highlights for the year ended Dec. 31, 2011.

"In the last year we made substantial progress as we announced positive clinical trial results and started clinical trials in additional cancer indications while maintaining the strength of our balance sheet," said Dr. Brad Thompson, president and chief executive officer of Oncolytics. "Our primary focus in the near term remains completing enrolment in the first stage of our phase III study in head and neck cancers with the support of an increasing number of enrolling centres in Europe and North America."

Selected highlights

Since Jan. 1, 2011, the company has made a number of significant announcements.

Clinical trial results:

• Oncolytics presented interim data from a phase II clinical trial using intravenous administration of Reolysin in combination with gemcitabine (Gemzar) in patients with advanced pancreatic cancer (REO 017) indicating that the clinical study had successfully reached its primary end point, and that the drug combination was active. Eight patients of 13 evaluable patients in the study had stable disease for 12 weeks or longer, for a clinical benefit rate (complete response plus partial response plus stable disease) of 62 per cent. An additional patient had an unconfirmed partial response of less than six weeks. Seventeen evaluable patients with pancreatic cancer were expected to be treated in the first stage and if three or more patients received clinical benefit, the study would then proceed to the next stage. This end point was met after six evaluable patients were enrolled.
• Oncolytics presented positive results from a phase II clinical trial (REO 015) using intravenous administration of Reolysin in combination with paclitaxel and carboplatin in patients with advanced head and neck cancers at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics. Of the 13 patients evaluable for response, four had partial responses, for an objective response rate of 31 per cent. Six patients had stable disease or better for 12 weeks or longer for a disease control rate (stable disease or better) of 46 per cent. Two of the four patients with partial responses and both patients with stable disease had received prior treatment with taxanes.
• Oncolytics presented interim preliminary results from a phase II clinical trial using intravenous administration of Reolysin in combination with paclitaxel and carboplatin in patients with non-small-cell lung cancer (NSCLC) with Kras or EGFR-activated tumours at the International Association for the Study of Lung Cancer World Conference on Lung Cancer. As of the presentation date, response evaluation in 21 patients showed six partial response (28.6 per cent), 13 stable disease (61.9 per cent) and two progressive disease (9.5 per cent), translating into a clinical benefit rate (complete response partial response plus stable disease) of 90.5 per cent and a response rate (complete response plus partial response) of 28.6 per cent.
• There were interim data from a U.K. translational clinical trial (REO 013) investigating intravenous administration of Reolysin in patients with metastatic colorectal cancer prior to surgical resection of liver metastases. On initial histological analysis of the 10 treated patients, there was evidence of selective delivery of virus to tumour versus normal liver and viral replication in the majority (seven) of patients.

Ongoing clinical program:

• Entry into an agreement whereby the NCIC clinical trials group at Queen's University in Kingston, Ont., will sponsor and conduct a randomized phase II study of Reolysin in patients with recurrent or metastatic castration-resistant prostate cancer enrolling up to 80 patients;
• Agreement with the cancer therapy evaluation program, division of cancer treatment and diagnosis, U.S. National Cancer Institute, which is part of the National Institutes of Health, to sponsor a phase I study of Reolysin alone in patients with relapsed multiple myeloma;
• The opening of enrolment in a U.S. phase 1 study of Reolysin in combination with Folfiri (folinic acid (leucovorin) plus fluorouracil (5-FU) plus irinotecan) in patients with oxaliplatin refractory/intolerant Kras mutant colorectal cancer (REO 022);
• Start of enrolment in a two-arm randomized phase II study of carboplatin, paclitaxel plus Reolysin versus carboplatin and paclitaxel alone in the first line treatment of patients with recurrent or metastatic pancreatic cancer sponsored by the NCI;
• Completion of enrolment in a U.S. phase II clinical trial using intravenous administration of Reolysin in combination with paclitaxel and carboplatin in patients with advanced head and neck cancers (REO 015).

Manufacturing:

• SAFC, a division of Sigma-Aldrich Corp., commenced validation activities designed to demonstrate the manufacturing process for the commercial production of Reolysin is robust and reproducible.
• A commercial supply agreement with SAFC for the commercial manufacture of Reolysin. Under the terms of the agreement, SAFC will perform process validation of the product, will continue to supply clinical requirements and will supply commercial material upon approval of the product.

Preclinical program:

• The posting of a study in the on-line version of Molecular Therapy, a publication of the American Society of Gene and Cell Therapy, investigating the timing of chemotherapy delivery that optimizes the efficacy of systemic Reolysin. The paper, authored by Kottke et al., was entitled "Precise Scheduling of Chemotherapy Primes VEGF-producing Tumors for Successful Systemic Oncolytic Virotherapy." It describes when best to administer taxanes with reovirus to optimize viral delivery to the tumour mass. The researchers demonstrated that this drug combination yielded superior results to either treatment alone. They were able to reproducibly cure nearly half of the treated animals by employing this optimized schedule of paclitaxel/Reolysin.

Financial:

• Closed bought deal financing, which had been increased to $18.5-million from $15-million, for gross proceeds of $21.3-million following the full exercise of the overallotment option by the syndicate of underwriters;
• Pursuant to the acceleration of the expiry date of those warrants issued on Nov. 23, 2009, the company received proceeds of approximately $6.8-million (U.S.) resulting from the exercise of 1,943,000 warrants;
• The exercise of 1,322,750 warrants, issued in connection with the financing that closed on Nov. 8, 2010, providing the company with proceeds of approximately $8.2-million.

Corporate:

• The appointment of Dr. Gerard Kennealey, MD, as senior vice-president of clinical development and chief medical officer. Dr. Kennealey most recently held the position of vice-president of scientific affairs at Cephalon Inc.;
• The appointment of Dr. George M. Gill, MD, as senior vice-president of regulatory affairs and chief safety officer. Dr. Gill has been an officer of Oncolytics since 2002.

                          
              CONSOLIDATED STATEMENTS OF (LOSS) AND COMPREHENSIVE (LOSS)

                                                         For the years ending Dec. 31,
                                                                  2011           2010
Expenses                                                                             
Research and development                                 $  23,386,685  $  13,882,565
Operating                                                    5,334,582      6,003,870
                                                         -------------- --------------
(Loss) before the following                                (28,721,267)   (19,886,435)
                                                         -------------- --------------
(Writedown) of asset available for sale                       (735,681)             - 
Change (loss) in fair value of warrant liability                36,000     (4,841,949)
Interest                                                       416,247         76,934
                                                         -------------- --------------
(Loss) before income taxes                                 (29,004,701)   (24,651,450)
Income tax (expense)                                           (40,000)        (7,611)
                                                         -------------- --------------
Net (loss)                                               $ (29,044,701) $ (24,659,061)
                                                         ============== ==============
Other comprehensive gain (loss) -- translation 
adjustment                                                      39,159       (156,660)
                                                         -------------- --------------
Net comprehensive (loss)                                   (29,005,542)   (24,815,721)
                                                         -------------- --------------
Basic and diluted (loss) per common share                        (0.41)         (0.39)

We seek Safe Harbor.