Oncolytics Biotech Inc. Announces 2008 First Quarter Results
CALGARY, April 30 /PRNewswire-FirstCall/ — Oncolytics Biotech Inc. (“Oncolytics”) (TSX:ONC, NASDAQ:ONCY) today announced its financial results and highlights for the three month period ended March 31, 2008.
“We are currently enrolling or recruiting patients in a total of nine clinical trials, four exploring the use of REOLYSIN(R) as a monotherapy, and five exploring the use of REOLYSIN(R) in combination with a variety of chemotherapies, immune modulation and radiotherapy,” said Dr. Brad Thompson, President and CEO of Oncolytics. “In 2008, we expect to report interim or final results on a number of our ongoing clinical trials. We are rapidly moving toward the point where we can expect to make pivotal clinical trial decisions about REOLYSIN(R). It is an exciting time for Oncolytics and our shareholders.”
First Quarter Highlights Significant Clinical Advances – Met the criteria to expand to full enrolment of 52 patients in our U.S. Phase II sarcoma trial after the third patient treated in the trial experienced stable disease by RECIST criteria for more than six months. – In early April, our collaborators presented positive interim results from our U.K. combination REOLYSIN(R) and paclitaxel/carboplatin trial at the British Society of Gene Therapy conference in Edinburgh. Three head and neck patients evaluated to date have had excellent clinical and radiological responses without appreciable toxicity. – The U.S. National Cancer Institute filed a protocol with the U.S. FDA to conduct a Phase I/II ovarian, peritoneal and fallopian tube cancer trial. The trial is currently recruiting patients. – Research characterizing immune system responses to REOLYSIN(R) in our U.K. Phase I systemic administration trial was published in the March 6 issue of Gene Therapy. Preclinical Advances – Two papers were published in Clinical Cancer Research covering preclinical work with reovirus in combination with radiation, and reovirus administration following cyclophosphamide. – In April, two presentations were made at the American Association for Cancer Research (AACR) covering work using the reovirus in combination with radiation for pediatric sarcomas, and reovirus as a purging agent for autologous stem cell transplants. – In April, a paper covering preclinical work demonstrating that reovirus can kill melanoma cell lines and freshly resected tumour was published in Gene Therapy. Intellectual Property – Two Canadian patents and one U.S. patent were secured in the quarter. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements of Oncolytics Biotech Inc. as at and for the three months ended March 31, 2008 and 2007, 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, 2007. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”).
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, including our belief as to the potential of REOLYSIN(R) as a cancer therapeutic and our expectations as to the success of our research and development and manufacturing programs in 2008 and beyond, future financial position, business strategy and plans for future operations, and statements that are not historical facts, involve known and unknown risks and uncertainties, which could cause our actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the need for and availability of funds and resources to pursue research and development projects, the efficacy of REOLYSIN(R) as a cancer treatment, the success and timely completion of clinical studies and trials, our ability to successfully commercialize REOLYSIN(R), uncertainties related to the research, development and manufacturing of pharmaceuticals, uncertainties related to competition, changes in technology, the regulatory process and general changes to the economic environment. Investors should consult our quarterly and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties relating to the forward-looking statements. Forward-looking statements are based on assumptions, projections, estimates and expectations of management at the time such forward-looking statements are made, and such assumptions, projections, estimates and/or expectations could change or prove to be incorrect or inaccurate. Investors are cautioned against placing undue reliance on forward-looking statements. We do not undertake to update these forward-looking statements.
OVERVIEW Oncolytics Biotech Inc. is a Development Stage Company
Since our inception in April of 1998, Oncolytics Biotech Inc. has been a development stage company and we have focused our research and development efforts on the development of REOLYSIN(R), our potential cancer therapeutic. We have not been profitable since our inception and expect to continue to incur substantial losses as we continue research and development efforts. We do not expect to generate significant revenues until, if and when, our cancer product becomes commercially viable.
General Risk Factors
Prospects for biotechnology companies in the research and development stage should generally be regarded as speculative. It is not possible to predict, based upon studies in animals, or early studies in humans, whether a new therapeutic will ultimately prove to be safe and effective in humans, or whether necessary and sufficient data can be developed through the clinical trial process to support a successful product application and approval.
If a product is approved for sale, product manufacturing at a commercial scale and significant sales to end users at a commercially reasonable price may not be successful. There can be no assurance that we will generate adequate funds to continue development, or will ever achieve significant revenues or profitable operations. Many factors (e.g. competition, patent protection, appropriate regulatory approvals) can influence the revenue and product profitability potential.
In developing a pharmaceutical product, we rely upon our employees, contractors, consultants and collaborators and other third party relationships, including the ability to obtain appropriate product liability insurance. There can be no assurance that these reliances and relationships will continue as required.
In addition to developmental and operational considerations, market prices for securities of biotechnology companies generally are volatile, and may or may not move in a manner consistent with the progress being made by Oncolytics.
REOLYSIN(R) Development Update for the First Quarter of 2008
We continue to develop our lead product REOLYSIN(R) as a potential cancer therapy. Our goal each year is to advance REOLYSIN(R) through the various steps and stages of development required for pharmaceutical products. In order to achieve this goal, we actively manage the development of our clinical trial program, our pre-clinical and collaborative programs, our manufacturing process and supply, and our intellectual property.
Clinical Trial Program
During the first quarter of 2008 our clinical trial program expanded to nine clinical trials of which seven are being conducted by us and two are being sponsored by the U.S. National Cancer Institute (“NCI”).
Clinical Trials – Actively Enrolling
During the first quarter of 2008, we continued to enroll patients in our Phase II combination REOLYSIN(R)/radiation and our three Phase I/II chemotherapeutic co-therapy clinical trials in the U.K. In the U.S., we continued to enroll patients in our Phase II sarcoma and in our Phase I/II recurrent malignant glioma clinical trials.
Clinical Trials – Expanded Enrollment
During the first quarter of 2008, we announced that we had met the initial criteria to proceed to full enrolment in our U.S. Phase II trial to evaluate the intravenous administration of REOLYSIN(R) in patients with various sarcomas that have metastasized to the lung.
According to the trial protocol, to proceed to full enrolment of 52 patients, we had to demonstrate that at least one patient in the first 38 patients treated experienced a complete or partial response, or stable disease for greater than six months. The third patient treated in the study was demonstrated to have stable disease by RECIST criteria for more than six months as measured by CT scan. A PET scan taken at the same time showed that any residual mass was metabolically inert.
This trial is a Phase II, open-label, single agent study whose primary objective is to measure tumour responses and duration of response, and to describe any evidence of antitumour activity of intravenous, multiple dose REOLYSIN(R) in patients with bone and soft tissue sarcomas metastatic to the lung. REOLYSIN(R) is delivered intravenously to patients at a dose of 3×1010 TCID50 for five consecutive days. Patients may receive additional five-day cycles of therapy every four weeks for a maximum of eight cycles. Up to 52 patients will be enrolled in the study.
Eligible patients must have a bone or soft tissue sarcoma metastatic to the lung deemed by their physician to be unresponsive to or untreatable by standard therapies. These include patients with osteosarcoma, Ewing sarcoma family tumours, malignant fibrous histiocytoma, synovial sarcoma, fibrosarcoma and leiomyosarcoma.
Clinical Trials – Recently Filed Application
In the first quarter of 2008, the NCI filed a protocol with the U.S. Food and Drug Administration for a Phase I/II clinical trial for patients with metastatic ovarian, peritoneal or fallopian tube cancers using concurrent systemic and intraperitoneal administration of REOLYSIN(R). The trial, which is being carried out at The Ohio State University Comprehensive Cancer Center, is expected to enroll up to 70 patients with metastatic ovarian, peritoneal or fallopian tube cancers. These cancer indications were selected after comprehensive preclinical studies carried out by the NCI indicated the reovirus can kill ovarian cancer cells.
Pre-Clinical Trial and Collaborative Program
In the first quarter of 2008, we reported that a research group led by Dr. Richard Vile of the Mayo Clinic College of Medicine in Rochester, Minnesota, published the results of its work testing the antitumor efficacy and safety of various combinations of reovirus and cyclophosphamide in vivo. The paper, entitled “Cyclophosphamide Facilitates Antitumor Efficacy against Subcutaneous Tumors following Intravenous Delivery of Reovirus” appeared online in the January 1, 2008 issue of Clinical Cancer Research.
The purpose of the research study was to investigate whether it was possible to use cyclophosphamide, an immune modulator, to enhance the delivery and replication of the reovirus when delivered intravenously. After testing various doses and dosing regimens of reovirus and cyclophosphamide in mice, a metronomic dosing regimen was developed that resulted in increased survival, high levels of reovirus recovered from regressing tumors, levels of neutralizing antibodies that were protective, and only very mild toxicities. The data support investigation in human clinical trials of the use of cyclophosphamide prior to systemic reovirus administration to modulate, but not ablate, the immune system.
We also reported that Dr. Kevin Harrington and his research group at The Institute of Cancer Research, London, U.K. published the results of their work testing combination treatment schedules of reovirus and radiation in human and murine tumour cells in vitro and in vivo. The paper, entitled “Enhanced In vitro and In vivo Cytotoxicity of Combined Reovirus and Radiotherapy” appeared online in the February 1, 2008 issue of Clinical Cancer Research.
The effect of different schedules of reovirus and radiotherapy on viral replication and cytotoxicity was tested in vitro and the combination was assessed in three tumour models in vivo. The results demonstrated that combining reovirus and radiotherapy significantly increased cancer cell killing both in vitro and in vivo, particularly in cell lines with moderate susceptibility to reovirus alone.
As well, in the first quarter of 2008, we reported that Dr. Kevin Harrington and his research group at The Institute of Cancer Research, London, U.K. published the results of their work characterizing immune system responses to administration of intravenous REOLYSIN(R) in a Phase I clinical trial. The paper, entitled “Characterization of the Adaptive and Innate Immune Response to Intravenous Oncolytic Reovirus (Dearing Type 3) during a Phase I Clinical Trial” appeared online in the March 6, 2008 issue of Gene Therapy.
The investigators conducted a detailed analysis of the immune effects of intravenous viral therapy by collecting and analyzing immune response to the presence of the virus. The results suggest that reovirus may stimulate the immune system to mount a dynamic immune response to the presence of virus, increasing the potential to significantly enhance the efficacy of oncolytic virotherapy. About a third of those patients also showed increases in NK (natural killer) cells following therapy. The data support the development of interventions aimed at blunting the patient’s immune response, although preclinical data also suggest that maintaining a baseline level is necessary to restrict systemic spread and toxicity of the virus.
Manufacturing and Process Development
In the first quarter of 2008, after completing the technology transfer of our 40-litre production process to our manufacturer in the U.S., we commenced production at the 40-litre scale under cGMP conditions for use in our clinical trials. Our process development activity continued to focus on scale up from 40-litre to 100-litre production runs.
Intellectual Property
During the first quarter of 2008, one U.S. and two Canadian patents were issued. At the end of the first quarter of 2008, we had been issued over 170 patents including 26 U.S. and eight 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 2008 that our average monthly cash usage would be approximately $1,660,000 for 2008. Our cash usage for the first quarter of 2008 was $2,991,234 from operating activities and $259,969 for the purchases of intellectual property and capital assets which is lower than our expected monthly average but is in line with our expectations for 2008. Our net loss for the first quarter of 2007 was $3,324,241.
Cash Resources
We exited the first quarter of 2008 with cash resources totaling $21,962,626 (see “Liquidity and Capital Resources”).
Expected REOLYSIN(R) Development for the Remainder of 2008
We plan to continue to enroll patients in our clinical trials throughout 2008 and still expect to complete enrollment in our co-therapy trials in the U.K. and our sarcoma study in the U.S. We believe that the results from these trials will allow us to broaden our Phase II clinical trial program and choose a pivotal trial path. As well, we believe that the NCI will commence enrollment in its two sponsored clinical trials.
We expect to produce REOLYSIN(R) for our clinical trial program throughout 2008. We believe we will complete our 100-litre scale up studies and will continue our examination of a lyophilization (freeze drying) process for REOLYSIN(R).
We continue to estimate, based on our expected activity for 2008 that our average monthly cash usage will be $1,660,000 per month (see “Liquidity and Capital Resources”).
Recent 2008 Progress Clinical Trials – Positive Interim Results
In April, we announced positive interim results and completion of the dose escalation portion of our U.K. combination REOLYSIN(R) and carboplatin/paclitaxel trial. Four of the first eight patients treated in the study to date have a diagnosis of carcinoma of the head and neck. All three head and neck patients evaluated to date have had excellent clinical and radiological responses without appreciable toxicity. Preliminary assessment after recruitment of the first two cohorts has suggested that patients with head and neck carcinomas represent a group of patients for whom the combination of carboplatin/paclitaxel and REOLYSIN(R) may prove effective.
In the first cohort, the patient with head and neck cancer received 8 cycles of treatment (the maximum allowed) and achieved a clinical complete response. In the second cohort, the two patients with head and neck cancers with widespread disseminated disease have each received seven cycles of treatment to date and both have achieved significant partial responses. Two of the three patients, including the patient with the clinical complete response, had previously received cisplatin/5-FU treatment and all three had previously received radiotherapy.
This clinical trial has two components. The first is an open-label, dose-escalating, non-randomized study of REOLYSIN(R) given intravenously with paclitaxel and carboplatin every three weeks. Standard dosages of paclitaxel and carboplatin were delivered to patients with escalating dosages of REOLYSIN(R) intravenously. The second component of the trial includes the enrolment of a further 12 patients at the maximum dosage of REOLYSIN(R) in combination with a standard dosage of paclitaxel and carboplatin.
Eligible patients include those who have been diagnosed with advanced or metastatic solid tumours such as head and neck, melanoma, lung and ovarian cancers that are refractory (have not responded) to standard therapy or for which no curative standard therapy exists. The primary objective of the trial is to determine the Maximum Tolerated Dose (MTD), Dose-Limiting Toxicity (DLT), recommended dose and dosing schedule and safety profile of REOLYSIN(R) when administered in combination with paclitaxel and carboplatin. 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.
Collaborations – Results
On April 15, 2008, we announced that a poster presentation by Dr. Anders Kolb of the Nemours Center for Childhood Cancer Research entitled “Radiation in Combination with Reolysin for Pediatric Sarcomas” was presented at the American Association for Cancer Research (“AACR”) Annual Meeting. The poster covers preclinical work using reovirus in combination with radiation in mice implanted with pediatric rhabdomyosarcoma and Ewing’s sarcoma tumours. The results demonstrated that the combination of reovirus and radiation significantly enhanced efficacy compared to either treatment alone in terms of tumour regression and event-free survival.
On April 15, 2008, we announced that an oral presentation by Dr. Chandini Thirukkumaran of the Tom Baker Cancer Centre, Calgary, entitled “Targeting Multiple Myeloma with Oncolytic Viral Therapy” was presented at the AACR Annual Meeting. The presentation covered preclinical work using reovirus as a purging agent during autologous (harvested from the patient themselves) hematopoietic stem cell transplants for multiple myeloma. The results demonstrated that up to 70% of multiple myeloma cell lines tested showed reovirus sensitivity and reovirus induced cancer cell death mediated through apoptosis.
On April 16, 2008, we announced that Prof. Alan Melcher and his research group at St. James’s University Hospital in Leeds, U.K. published the results of their work in the April 10 online issue of Gene Therapy. The paper is entitled “Inflammatory Tumour Cell Killing by Oncolytic Reovirus for the Treatment of Melanoma.” The investigators showed that reovirus effectively kills and replicates in both human melanoma cell lines and freshly resected tumour. They demonstrated that reovirus melanoma killing is more potent than, and distinct from, chemotherapy or radiotherapy-induced cell death. They concluded that reovirus is suitable for clinical testing in melanoma.
RESULTS OF OPERATIONS
Net loss for the three month period ending March 31, 2008 was $3,324,241 compared to $4,113,231 for the three month period ending March 31, 2007.
Research and Development Expenses (“R&D”) 2008 2007 $ $ ————————————————————————- Manufacturing and related process development expenses 503,094 1,838,193 Clinical trial expenses 1,042,791 721,617 Pre-clinical trial expenses and collaborations – 106,281 Other R&D expenses 579,926 552,146 ————————————————————————- Research and development expenses 2,125,811 3,218,237 ————————————————————————- ————————————————————————-
For the first quarter of 2008, R&D decreased to $2,125,811 compared to $3,218,237 for the first quarter of 2007. The decrease in R&D was due to the following:
Manufacturing & Related Process Development (“M&P”) 2008 2007 $ $ ————————————————————————- Product manufacturing expenses 467,328 1,748,417 Process development expenses 35,766 89,776 ————————————————————————- Manufacturing and related process development expenses 503,094 1,838,193 ————————————————————————- ————————————————————————-
Our M&P expenses for the first quarter of 2008 decreased to $503,094 compared to $1,838,193 for the first quarter of 2007.
In the first quarter of 2008, our production activity decreased compared to the first quarter of 2007. During the first quarter of 2008, we entered into a contract to manufacture REOLYSIN(R) at the 40-litre scale. We commenced production under this contract towards the end of the first quarter of 2008. In the first quarter of 2007, along with a number of manufacturing runs at the 20-litre scale, we also incurred vial filling activity for the production runs that were completed at the end of 2006.
Our process development expenses for the first quarter of 2008 were $35,766 compared to $89,776 for the first quarter of 2007. In the first quarter of 2008, our process development focus continues to be on the scale up to 100-litre production runs. In the first quarter of 2007, our process development focus was on our earlier 40-litre scale up studies.
We still expect that our M&P expenses for 2008 will increase compared to 2007. We have initiated our 40-litre production runs which will continue throughout 2008. As well, we still expect to finalize our 100-litre scale up studies and continue the examination of a lyophilization process for REOLYSIN(R) in 2008. Once our 100-litre process development studies are complete, we expect to transfer our 100-litre manufacturing process to our cGMP manufacturers.
Clinical Trial Program 2008 2007 $ $ ————————————————————————- Direct clinical trial expenses 994,646 683,107 Other clinical trial expenses 48,145 38,510 ————————————————————————- Clinical trial expenses 1,042,791 721,617 ————————————————————————- ————————————————————————-
During the first quarter of 2008, our direct clinical trial expenses increased to $994,646 compared to $683,107 for the first quarter of 2007. In the first quarter of 2008, we incurred direct patient costs in our six enrolling clinical trials compared to only three actively enrolling clinical trials in the first quarter of 2007.
We still expect our clinical trial expenses to increase in 2008 compared to 2007. The increase in these expenses is expected to arise from continued enrollment and continued re-treatments in our existing clinical trials.
Pre-Clinical Trial Expenses and Research Collaborations 2008 2007 $ $ ————————————————————————- Research collaboration expenses – 106,281 Pre-clinical trial expenses – – ————————————————————————- Pre-clinical trial expenses and research collaborations – 106,281 ————————————————————————- ————————————————————————-
During the first quarter of 2008, our research collaboration activity focused on renewing specific collaborations, but no costs were incurred compared to $106,281 for the first quarter of 2007. Our research collaboration activity continues to focus on the interaction of the immune system and the reovirus and the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation.
We still expect that our pre-clinical trial expenses and research collaborations in 2008 will remain consistent with 2007.
Other Research and Development Expenses 2008 2007 $ $ ————————————————————————- R&D consulting fees 27,408 91,776 R&D salaries and benefits 478,118 372,389 Other R&D expenses 74,400 87,981 ————————————————————————- Other research and development expenses 579,926 552,146 ————————————————————————- ————————————————————————-
During the first quarter of 2008, our R&D consulting fees were $27,408 compared to $91,776 for the first quarter of 2007. In the first quarter of 2007, we incurred consulting activity associated with our co-therapy clinical trial applications that was not incurred in the first quarter of 2008.
Our R&D salaries and benefits costs were $478,118 for the first quarter of 2008 compared to $372,389 for the first quarter of 2007. The increase is a result of increases in salary levels for 2008 compared to 2007.
We still expect that our Other R&D expenses will remain consistent with 2007.
Operating Expenses 2008 2007 $ $ ————————————————————————- Public company related expenses 759,970 581,876 Office expenses 324,284 324,839 ————————————————————————- Operating expenses 1,084,254 906,715 ————————————————————————- ————————————————————————-
During the first quarter of 2008, our public company related expenses were $759,970 compared to $581,876 for the first quarter of 2007. In the first quarter of 2008, we incurred an increase in professional fees associated with the expansion of our corporate structure, an increase in our investor relations activity, and an increase in compensation costs paid to our board of directors compared to the first quarter of 2007.
During the first quarter of 2008, our office expenses were $324,284 compared to $324,839 for the first quarter of 2007. Our office expense activity has remained consistent in the first quarter of 2008 compared to the first quarter of 2007.
Commitments
As at March 31, 2008, we are committed to payments totaling $2,497,000 during the remainder of 2008 for activities related to clinical trial activity, manufacturing 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:
————————————————————————- 2008 2007 2006 ————————————————————————- March Dec. Sept. June March Dec. Sept. June ————————————————————————- Revenue – – – – – – – – ————————————————————————- Interest income 180 265 319 359 268 286 320 335 ————————————————————————- Net loss(3) 3,324 4,085 3,764 3,680 4,113 4,890 3,425 2,988 ————————————————————————- Basic and diluted loss per common share(3) $0.08 $0.13 $0.09 $0.09 $0.11 $0.13 $0.09 $0.08 ————————————————————————- Total assets (1),(4) 27,408 30,782 33,897 37,670 41,775 33,566 37,980 40,828 ————————————————————————- Total cash (2),(4) 21,963 25,214 28,191 31,533 35,681 27,614 31,495 34,501 ————————————————————————- Total long-term debt(5) – – – – – 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 2007. (2) Included in total cash are cash and cash equivalents plus short-term investments. (3) Included in net loss and loss per common share between March 2008 and April 2006 are quarterly stock based compensation expenses of $19,593, $396,278, $38,909, $82,573, $21,396, $109,670, $34,671, and $222,376, respectively. (4) We issued 4,600,000 units for net cash proceeds of $12,063,394 during 2007 with each unit consisting of one common share and one half of one common share purchase warrant. (2006 – 284,000 common shares for cash proceeds of $241,400) (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 3 of the December 31, 2007 audited financial statements). (6) We have not declared or paid any dividends since incorporation. LIQUIDITY AND CAPITAL RESOURCES Liquidity
As at March 31, 2008, we had cash and cash equivalents (including short-term investments) and working capital positions of $21,962,626 and $19,457,103, respectively compared to $25,213,829 and $22,732,987, respectively for December 31, 2007. The decrease in the first quarter of 2008 reflects the cash usage from our operating activities and purchase of intellectual property of $2,991,234 and $257,304, 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. In 2008, we expect to continue to enroll patients in our various clinical trials and we also expect to continue with our collaborative studies pursuing support for our clinical trial program. We will therefore need to ensure that we have enough REOLYSIN(R) to supply our clinical trial and collaborative programs. We still expect our average monthly cash usage to be $1,660,000 in 2008 and we believe our existing capital resources are adequate to fund our current plans for research and development activities well into 2009. Factors that will affect our anticipated monthly burn rate include, but are not limited to, the number of manufacturing runs required to supply our clinical trial program and the cost of each run, the number of clinical trials ultimately approved, the timing of patient enrollment in the approved clinical trials, the actual costs incurred to support each clinical trial, the number of treatments each patient will receive, the timing of the NCI’s R&D activity, and the level of pre-clinical activity undertaken.
In the event that we choose to seek additional capital, we will look to fund additional capital requirements primarily through the issue of additional equity. We recognize the challenges and uncertainty inherent in the capital markets and the potential difficulties we might face in raising additional capital. Market prices and market demand for securities in biotechnology companies are volatile and there are no assurances that we will have the ability to raise funds when required.
Capital Expenditures
We spent $257,304 on intellectual property in the first quarter of 2008 compared to $218,177 in the first quarter of 2007. The change in intellectual property expenditures reflects the timing of filing costs associated with our expanded patent base. As well, we have benefited from fluctuations in the Canadian dollar as our patent costs are typically incurred in U.S. currency. At the end of the first quarter of 2008, we had been issued over 170 patents including 26 U.S. and eight 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.
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 $14,635,920 invested under this policy and we are currently earning interest at an effective rate of 2.74% (2007 – 4.08%).
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION Capital Disclosures
On January 1, 2008, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants (“CICA”) for disclosure of the Company’s objectives, policies and processes for managing capital (CICA Handbook Section 1535), as discussed further in Note 5 of our interim consolidated financial statements.
Financial Instruments – Disclosures
On January 1, 2008, the Company adopted the new recommendations of the CICA for disclosures about financial instruments, including disclosures about fair value and the credit, liquidity and market risks associated with financial instruments (CICA Handbook Section 3862), as discussed further in Notes 6 and 7 of our interim consolidated financial statements.
Financial Instruments – Presentation
On January 1, 2008, the Company adopted the new recommendations of the CICA for presentation of financial instruments (CICA Handbook Section 3863). Adoption of this standard had no impact on the Company’s financial instrument related presentation disclosures.
OTHER MD&A REQUIREMENTS
We have 41,180,748 common shares outstanding at April 30, 2008. If all of our warrants (4,220,000) and options (3,870,493) were exercised we would have 49,271,241 common shares outstanding.
Additional information relating to Oncolytics Biotech Inc. is available on SEDAR at http://www.sedar.com/.
Controls and Procedures
There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2008 that materially affected or are reasonably likely to materially affect, internal controls over financial reporting.
Oncolytics Biotech Inc. CONSOLIDATED BALANCE SHEETS (unaudited) As at, March 31, December 31, 2008 2007 $ $ ————————————————————————- ASSETS Current Cash and cash equivalents 7,326,706 6,715,096 Short-term investments (note 7) 14,635,920 18,498,733 Accounts receivable 85,099 80,085 Prepaid expenses 161,478 260,300 ————————————————————————- 22,209,203 25,554,214 Property and equipment 192,582 201,103 Intellectual property 5,006,297 5,026,540 ————————————————————————- 27,408,082 30,781,857 ————————————————————————- ————————————————————————- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities 2,752,100 2,821,227 ————————————————————————- Shareholders’ equity Share capital Authorized: unlimited number of common shares Issued: 41,180,748 (December 31, 2007 – 41,180,748) 92,759,665 92,759,665 Warrants 5,346,260 5,346,260 Contributed surplus (note 3) 10,396,555 10,376,962 Deficit (note 4) (83,846,498) (80,522,257) ————————————————————————- 24,655,982 27,960,630 ————————————————————————- 27,408,082 30,781,857 ————————————————————————- ————————————————————————- See accompanying notes Oncolytics Biotech Inc. CONSDOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (unaudited) Cumulative from Three Month Three Month inception Period Period on April 2, Ending Ending 1998 to March 31, March 31, March 31, 2008 2007 2008 $ $ $ ————————————————————————- Revenue Rights revenue – – 310,000 ————————————————————————- Expenses Research and development 2,125,811 3,218,237 56,662,093 Operating 1,084,254 906,715 21,842,523 Stock-based compensation 19,593 21,396 4,724,398 Foreign exchange loss (gain) 9,262 (5,233) 666,972 Amortization – intellectual property 254,469 230,992 5,253,730 Amortization – property and equipment 11,186 9,856 459,583 ————————————————————————- 3,504,575 4,381,963 89,609,299 ————————————————————————- Loss before the following: 3,504,575 4,381,963 89,299,299 Interest income (180,334) (268,732) (6,195,083) Gain on sale of BCY LifeSciences Inc. – – (299,403) Loss on sale of Transition Therapeutics Inc. – – 2,156,685 ————————————————————————- Loss before taxes 3,324,241 4,113,231 84,961,498 Future income tax recovery – – (1,115,000) ————————————————————————- Net loss and comprehensive loss for the period 3,324,241 4,113,231 83,846,498 ————————————————————————- ————————————————————————- Basic and diluted loss per share (0.08) (0.11) ———————————————————– ———————————————————– Weighted average number of shares (basic and diluted) 41,180,748 38,231,859 ———————————————————– ———————————————————– See accompanying notes Oncolytics Biotech Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Cumulative from Three Month Three Month inception Period Period on April 2, Ending Ending 1998 to March 31, March 31, March 31, 2008 2007 2008 $ $ $ ———————————————————————— OPERATING ACTIVITIES Net loss for the period (3,324,241) (4,113,231) (83,846,498) Deduct non-cash items Amortization – intellectual property 254,469 230,992 5,253,730 Amortization – property and equipment 11,186 9,856 459,583 Stock-based compensation 19,593 21,396 4,724,398 Other non-cash items (note 5) – – 1,383,537 Net change in non-cash working capital (note 5) 47,759 103,278 2,482,980 ————————————————————————- Cash used in operating activities (2,991,234) (3,747,709) (69,542,270) ————————————————————————- INVESTING ACTIVITIES Intellectual property (257,304) (218,177) (6,609,082) Property and equipment (2,665) (34,748) (718,234) Purchase of short-term investments (137,187) (233,770) (49,206,150) Redemption of short-term investments 4,000,000 – 34,151,746 Investment in BCY LifeSciences Inc. – – 464,602 Investment in Transition Therapeutics Inc. – – 2,532,343 ————————————————————————- Cash provided by (used) in investing activities 3,602,844 (486,695) (19,384,775) ————————————————————————- FINANCING ACTIVITIES Proceeds from exercise of warrants and stock options – – 15,259,468 Proceeds from private placements – – 38,137,385 Proceeds from public offerings – 12,068,172 42,856,898 ————————————————————————- Cash provided by financing activities – 12,068,172 96,253,751 ————————————————————————- Net increase in cash and cash equivalents during the period 611,610 7,833,768 7,326,706 Cash and cash equivalents, beginning of the period 6,715,096 3,491,511 – ————————————————————————- ————————————————————————- Cash and cash equivalents, end of the period 7,326,706 11,325,279 7,326,706 ————————————————————————- ————————————————————————- See accompanying notes Oncolytics Biotech Inc. NOTES TO FINANCIAL STATEMENTS March 31, 2008 (unaudited) 1. INCORPORATION AND NATURE OF OPERATIONS Oncolytics Biotech Inc. (the “Company” or “Oncolytics”) was incorporated on April 2, 1998 under the Business Corporations Act (Alberta) as 779738 Alberta Ltd. On April 8, 1998, the Company changed its name to Oncolytics Biotech Inc. The Company is a development stage biopharmaceutical company that focuses on the discovery and development of pharmaceutical products for the treatment of cancers that have not been successfully treated with conventional therapeutics. The product being developed by the Company may represent a novel treatment for Ras mediated cancers which can be used as an alternative to existing cytotoxic or cytostatic therapies, as an adjuvant therapy to conventional chemotherapy, radiation therapy, or surgical resections, or to treat certain cellular proliferative disorders for which no current therapy exists. 2. ACCOUNTING POLICIES These unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The notes presented in these unaudited interim consolidated financial statements include only significant events and transactions occurring since the Company’s last fiscal year end and are not fully inclusive of all matters required to be disclosed in the Company’s annual audited financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the Company’s most recent annual audited financial statements. The information as at and for the year ended December 31, 2007 has been derived from the Company’s annual audited financial statements. The accounting policies used in the preparation of these unaudited interim consolidated financial statements conform to those used in the Company’s most recent annual financial statements except for the following: Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiary, Oncolytics Biotech (Barbados) Inc. All intercompany transactions and balances have been eliminated. Adoption of New Accounting Policies Capital Disclosures On January 1, 2008, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants (“CICA”) for disclosure of the Company’s objectives, policies and processes for managing capital (CICA Handbook Section 1535), as discussed further in Note 6. Financial Instruments – Disclosures On January 1, 2008, the Company adopted the new recommendations of the CICA for disclosures about financial instruments, including disclosures about fair value and the credit, liquidity and market risks associated with financial instruments (CICA Handbook Section 3862), as discussed further in Notes 7 and 8. Financial Instruments – Presentation On January 1, 2008, the Company adopted the new recommendations of the CICA for presentation of financial instruments (CICA Handbook Section 3863). Adoption of this standard had no impact on the Company’s financial instrument related presentation disclosures. 3. CONTRIBUTED SURPLUS Amount $ ————————————————————————- Balance, December 31, 2006 8,529,326 Stock-based compensation 539,156 Expired warrants 1,308,480 ————————————————————————- Balance, December 31, 2007 10,376,962 Stock-based compensation 19,593 ————————————————————————- Balance, March 31, 2008 10,396,555 ————————————————————————- ————————————————————————- 4. DEFICIT Amount $ ————————————————————————- Balance, December 31, 2006 65,030,066 Adjustment – Alberta Heritage Foundation loan(1) (150,000) Net loss for the year 15,642,191 ————————————————————————- Balance, December 31, 2007 80,522,257 Net loss, March 31, 2008 3,324,241 ————————————————————————- Balance, March 31, 2008 83,846,498 ————————————————————————- ————————————————————————- (1) On January 1, 2007, the Company adopted, without restatement, CICA Handbook Section 3855 “Financial Instruments – Recognition and Measurement” and Section 1530 “Other Comprehensive Income”. Pursuant to the transitional provisions of Section 3855, the Company classified its short-term investments as held-to-maturity fixed income securities and recorded its Alberta Heritage Foundation interest free loan at fair value. As a result, there were no adjustments made to short-term investments or other comprehensive income and there was a decrease in the Alberta Heritage Foundation loan of $150,000 with a corresponding decrease of $150,000 in the Company’s deficit. 5. ADDITIONAL CASH FLOW DISCLOSURE Net Change in Non-Cash Working Capital Cumulative from Three Month Three Month inception Period Period on April 2, Ended Ended 1998 to March 31, March 31, March 31, 2008 2007 2008 $ $ $ ————————————————————————- Changes in: Accounts receivable (5,014) 33,055 (85,099) Prepaid expenses 98,822 (143,417) (161,478) Accounts payable and accrued liabilities (69,127) 232,940 2,752,100 ————————————————————————- Net change in non-cash working capital 24,681 122,578 2,505,523 Portion related to investing activities 23,078 (19,300) (22,543) ————————————————————————- Net change associated with operating activities 47,759 103,278 2,482,980 ————————————————————————- ————————————————————————- Other Non-Cash Items Cumulative from Three Month Three Month inception Period Period on April 2, Ended Ended 1998 to March 31, March 31, March 31, 2008 2007 2008 $ $ $ ————————————————————————- Foreign exchange loss – – 425,186 Donation of medical equipment – – 66,069 Loss on sale of Transition Therapeutics Inc. – – 2,156,685 Gain on sale of BCY LifeSciences Inc. – – (299,403) Cancellation of contingent payment obligation settled in common shares – – 150,000 Future income tax recovery – – (1,115,000) ————————————————————————- – – 1,383,537 ————————————————————————- ————————————————————————- 6. CAPITAL DISCLOSURES The Company’s objective when managing capital is to maintain adequate cash resources to support planned activities which include the clinical trial program, product manufacturing, administrative costs and intellectual property expansion and protection. The Company includes shareholders’ equity, cash and short-term investments in the definition of capital. The Company does not have any debt other than trade accounts payable and has potential contingent obligations relating to the completion of its research and development of REOLYSIN(R). In managing capital, the Company estimates its future cash requirements by preparing a budget and a multiyear plan annually for review and approval by the Company’s board of directors (the “Board”). The budget establishes the approved activities for the upcoming year and estimates the costs associated with these activities. The multiyear plan estimates future activity along with the potential cash requirements and is based on the Company’s assessment of its current clinical trial progress along with the expected results from the coming year’s activity. Budget to actual variances are prepared monthly and reviewed by the Company’s management and are presented quarterly to the Board. Historically, funding for the Company’s plan is primarily managed through the issuance of additional common shares and common share purchase warrants that upon exercise are converted to common shares. Management regularly monitors the capital markets attempting to balance the timing of issuing additional equity with the Company’s progress through its clinical trial program, general market conditions, and the availability of capital. There are no assurances that funds will be made available to the Company when required. The Company is not subject to externally imposed capital requirements. 7. SHORT-TERM INVESTMENTS Short-term investments, consisting of bankers’ acceptances, are liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. The objectives for holding short-term investments are to invest the Company’s excess cash resources in investment vehicles that provide a better rate of return compared to the Company’s interest bearing bank account with limited risk to the principal invested. The Company also intends to match the maturities of these short-term investments with the cash requirements of the Company’s activities. The Company does not hold any asset backed commercial paper. Effective Original Accrued Carrying Fair Interest Cost Interest Value Value Rate $ $ $ $ ————————————————————————- March 31, 2008 Short-term investments 14,576,744 59,176 14,635,920 14,539,205 2.74% ————————————————————————- ————————————————————————- ————————————————————————- December 31, 2007 Short-term investments 18,230,340 268,393 18,498,733 18,499,173 4.26% ————————————————————————- ————————————————————————- Fair value is determined by using published market prices provided by the Company’s investment advisor. 8. FINANCIAL INSTRUMENTS Financial instruments of the Company consist of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable. As at March 31, 2008, there are no significant differences between the carrying values of these amounts and their estimated market values. Credit risk Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk on its cash and cash equivalents and short-term investments in the event of non-performance by counterparties, but does not anticipate such non-performance. The maximum exposure to credit risk of the Company at the end of the period is the carrying value of its cash and cash equivalents and short-term investments. The Company mitigates its exposure to credit risk by maintaining its primary operating and investment bank accounts with Schedule I banks in Canada. For its foreign domiciled bank accounts, the Company uses referrals or recommendations from its Canadian banks to open foreign bank accounts and these accounts are used solely for the purpose of settling accounts payable or payroll. The Company also mitigates its exposure to credit risk by restricting its portfolio to investment grade securities with short term maturities and by monitoring the credit risk and credit standing of counterparties. Interest rate risk Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk through its cash and cash equivalents and its portfolio of short-term investments. The Company mitigates this risk through its investment policy that only allows investment of its excess cash resources in investment grade vehicles while matching maturities with the Company’s operational requirements. Fluctuations in market rates of interest do not have a significant impact on the Company’s results of operations due to the short term to maturity of the investments held. Currency risk Currency risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk from the purchase of goods and services primarily in the U.S. and the U.K. The Company mitigates its foreign exchange risk through the purchase of foreign currencies in sufficient amounts to settle its foreign accounts payable. Balances in foreign currencies at March 31, 2008 are as follows: U.S. British dollars pounds $ (pnds stlg) ————————————————————————- Cash and cash equivalents 441,078 181,214 Accounts payable (440,988) (35,985) ————————————————————————- 90 145,229 ————————————————————————- ————————————————————————- Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure as outlined in note 6 to the unaudited financial statements. Accounts payable are all due within the current operating period. 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/II and Phase II human trials using REOLYSIN(R), its proprietary formulation of the human reovirus, alone and in combination with radiation or chemotherapy. For further information about Oncolytics, please visit http://www.oncolyticsbiotech.com/.
Oncolytics Biotech Inc.
CONTACT: For Canada: Oncolytics Biotech Inc., Cathy Ward, 210, 1167Kensington Cr NW, Calgary, Alberta, T2N 1X7, Tel: (403) 670-7377, Fax: (403)283-0858, cathy.ward@oncolytics.ca; For Canada: The Equicom Group, Nick Hurst,325, 300 5th Ave. SW, Calgary, Alberta, T2P 3C4, Tel: (403) 538-4845, Fax:(403) 237-6916, nhurst@equicomgroup.com; For United States: The InvestorRelations Group, Erika Moran, 11 Stone St, 3rd Floor, New York, NY, 10004,Tel: (212) 825-3210, Fax: (212) 825-3229, emoran@investorrelationsgroup.com