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Interim Consolidated Financial Statements
Oncolytics Biotech Inc.
March 31, 2018 and 2017
ONCOLYTICS BIOTECH INC.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| As at | Notes | March 31, 2018 $ | December 31, 2017 $ | ||
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 4 | 7,745,255 | 11,836,119 | ||
| Contract receivable | 8 | 4,899,720 | 4,767,100 | ||
| Other receivables | 38,888 | 37,726 | |||
| Prepaid expenses | 1,087,013 | 1,176,063 | |||
| Total current assets | 13,770,876 | 17,817,008 | |||
| Non-current assets | |||||
| Property and equipment | 356,281 | 333,441 | |||
| Total non-current assets | 356,281 | 333,441 | |||
| Total assets | 14,127,157 | 18,150,449 | |||
| Liabilities And Shareholders' Equity | |||||
| Current Liabilities | |||||
| Accounts payable and accrued liabilities | 3,201,351 | 3,684,023 | |||
| Contract liability | 8 | 927,400 | 1,545,645 | ||
| Total current liabilities | 4,128,751 | 5,229,668 | |||
| Non-current liabilities | |||||
| Contract liability | 8 | 5,255,180 | 4,636,935 | ||
| Total non-current liabilities | 5,255,180 | 4,636,935 | |||
| Total liabilities | 9,383,931 | 9,866,603 | |||
| Commitments and contingencies | 9 | ||||
| Shareholders' equity | |||||
| Share capital Authorized: unlimited Issued: March 31, 2018 - 142,325,222 December 31, 2017 - 141,805,722 | 5 | 272,230,453 | 271,710,138 | ||
| Warrants | 5 | 3,617,900 | 3,617,900 | ||
| Contributed surplus | 6 | 27,567,356 | 27,028,238 | ||
| Accumulated other comprehensive income | 444,351 | 373,730 | |||
| Accumulated deficit | (299,116,834 | ) | (294,446,160 | ) | |
| Total shareholders' equity | 4,743,226 | 8,283,846 | |||
| Total liabilities and equity | 14,127,157 | 18,150,449 |
See accompanying notes
ONCOLYTICS BIOTECH INC.
INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
| For the three month period ending March 31, | Notes | 2018 $ | 2017 $ | ||
| Expenses | |||||
| Research and development | 6, 13, 14 | 2,934,891 | 2,268,071 | ||
| Operating | 6, 13, 14 | 1,762,553 | 1,300,300 | ||
| Loss before the following | (4,697,444 | ) | (3,568,371 | ) | |
| Interest | 26,890 | 50,715 | |||
| Loss before income taxes | (4,670,554 | ) | (3,517,656 | ) | |
| Income tax expense | (120 | ) | (63 | ) | |
| Net loss | (4,670,674 | ) | (3,517,719 | ) | |
| Other comprehensive income (loss) items that may be reclassified to net loss | |||||
| Translation adjustment | 70,621 | (20,748 | ) | ||
| Net comprehensive loss | (4,600,053 | ) | (3,538,467 | ) | |
| Basic and diluted loss per common share | 7 | (0.03 | ) | (0.03 | ) |
| Weighted average number of shares (basic and diluted) | 7 | 142,249,733 | 121,258,222 |
See accompanying notes
ONCOLYTICS BIOTECH INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Notes | Share Capital $ | Warrants $ | Contributed Surplus $ | Accumulated Other Comprehensive Income $ | Accumulated Deficit $ | Total $ | |||||||
| As at December 31, 2016 | 262,321,825 | - | 26,643,044 | 554,060 | (278,829,309 | ) | 10,689,620 | ||||||
| Net loss and other comprehensive loss | - | - | - | (20,748 | ) | (3,517,719 | ) | (3,538,467 | ) | ||||
| Share based compensation | 6 | - | - | 133,889 | - | - | 133,889 | ||||||
| Share issue costs | 5 | (10,500 | ) | - | - | - | - | (10,500 | ) | ||||
| As at March 31, 2017 | 262,311,325 | - | 26,776,933 | 533,312 | (282,347,028 | ) | 7,274,542 | ||||||
| As at December 31, 2017 | 271,710,138 | 3,617,900 | 27,028,238 | 373,730 | (294,446,160 | ) | 8,283,846 | ||||||
| Net loss and other comprehensive income | - | - | - | 70,621 | (4,670,674 | ) | (4,600,053 | ) | |||||
| Issued pursuant to "At the Market" Agreement | 5 | 553,650 | - | - | - | - | 553,650 | ||||||
| Share based compensation | 6 | - | - | 539,118 | - | - | 539,118 | ||||||
| Share issue costs | 5 | (33,335 | ) | - | - | - | - | (33,335 | ) | ||||
| As at March 31, 2018 | 272,230,453 | 3,617,900 | 27,567,356 | 444,351 | (299,116,834 | ) | 4,743,226 |
See accompanying notes
ONCOLYTICS BIOTECH INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the three month period ending March 31, | Notes | 2018 $ | 2017 $ | ||
| Operating Activities | |||||
| Net loss for the period | (4,670,674 | ) | (3,517,719 | ) | |
| Amortization - property and equipment | 13 | 19,858 | 24,036 | ||
| Share based compensation | 6, 13, 14 | 539,118 | 133,889 | ||
| Unrealized foreign exchange (gain) loss | (4,513 | ) | 52,032 | ||
| Net change in non-cash working capital | 12 | (492,547 | ) | (637,646 | ) |
| Cash used in operating activities | (4,608,758 | ) | (3,945,408 | ) | |
| Investing Activities | |||||
| Acquisition of property and equipment | (42,619 | ) | (5,836 | ) | |
| Redemption of short-term investments | - | 2,088,800 | |||
| Cash (used in) provided by investing activities | (42,619 | ) | 2,082,964 | ||
| Financing Activities | |||||
| Proceeds from "At the Market" equity distribution agreement | 5 | 520,315 | (10,500 | ) | |
| Cash provided by (used in) financing activities | 520,315 | (10,500 | ) | ||
| Decrease in cash | (4,131,062 | ) | (1,872,944 | ) | |
| Cash and cash equivalents, beginning of period | 11,836,119 | 12,034,282 | |||
| Impact of foreign exchange on cash and cash equivalents | 40,198 | (58,945 | ) | ||
| Cash and cash equivalents, end of period | 7,745,255 | 10,102,393 |
See accompanying notes
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Incorporation and Nature of Operations
Oncolytics Biotech Inc. was incorporated on April 2, 1998 under the Business Corporations Act (Alberta) as 779738 Alberta Ltd. On April 8, 1998, we changed our name to Oncolytics Biotech Inc.
Our interim consolidated financial statements for the period ended March 31, 2018, were authorized for issue in accordance with a resolution of the Board of Directors (the "Board") on May 11, 2018. We are a limited company incorporated and domiciled in Canada. Our shares are publicly traded and our registered office is located at 210, 1167 Kensington Crescent NW, Calgary, Alberta, Canada.
We are 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. Our lead product, REOLYSIN , is a potential immuno-oncology viral-agent that may be a novel treatment for certain types of cancer and may be an alternative to existing cytotoxic or cytostatic therapies. Our clinical development program for REOLYSIN emphasizes three programs: chemotherapy combinations to trigger selective tumor lysis; immune modulator (IMiD) combinations to facilitate innate immune responses; and immuno-therapy combinations to produce adaptive immune responses.
Note 2: Basis of Financial Statement Presentation
Our interim consolidated financial statements include our financial statements and the financial statements of our subsidiaries as at March 31, 2018 and are presented in Canadian dollars, our functional currency.
Our accounts are prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"). The accounts are prepared on the historical cost basis, except for certain assets and liabilities which are measured at fair value as explained in the notes to these financial statements.
These interim consolidated financial statements have been prepared in compliance with International Accounting Standard 34 Interim Financial Reporting. The notes presented in these interim consolidated financial statements include only significant events and transactions occurring since our last fiscal year end and are not fully inclusive of all matters required to be disclosed in our annual audited consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with our most recent annual audited consolidated financial statements, for the year ended December 31, 2017. We have consistently applied the same accounting policies for all periods presented in these interim consolidated financial statements as those used in our audited consolidated financial statements for the year ended December 31, 2017, except for the adoption of new standards effective as of January 1, 2018.
Note 3: Significant Accounting Policies
IFRS 9 - Financial Instruments
IFRS 9 Financial Instruments ("IFRS 9") replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after January 1, 2018. IFRS 9 includes guidance on the classification and measurement of financial assets and financial liabilities and impairment of financial assets.
We have applied IFRS 9 retrospectively, with the initial application date of January 1, 2018. There were no changes to the measurement of our financial assets and liabilities or adjustments to comparative information as a result of the adoption of IFRS 9.
Except for our contract receivable, financial assets are initially measured at fair value plus or minus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Contract receivables are initially measured at the respective transaction price.
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under IFRS 9, financial assets are subsequently measured at amortised cost, fair value through profit or loss (FVPL), or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Company's business model for managing the assets; and whether the financial asset's contractual cash flows represent solely payments of principal and interest' on the principal amount outstanding (the SPPI criterion').
Our financial assets include cash and cash equivalents, contract receivable and other receivables. The classification and measurement of these financial assets are at amortized cost, as these assets are held within our business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion. Under IAS 39, our financial assets were classified as follows: cash and cash equivalents - held for trading; contract receivable and other receivables - loans and receivables. The accounting for our financial assets remained the same as it was under IAS 39.
Financial liabilities
Financial liabilities are initially measured at fair value and are subsequently measured at amortised cost. The accounting for our financial liabilities remained the same as it was under IAS 39.
Under IFRS 9, accounting for impairment losses for financial assets uses a forward-looking expected credit loss (ECL) approach.
IFRS 9 requires that we record a loss allowance for ECLs on all financial assets not held at FVPL. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. The shortfall is then discounted at an approximation to the asset's original effective interest rate.
For our contract receivable and other receivables, we have applied the simplified approach permitted by IFRS 9 and calculated ECLs based on lifetime expected credit losses. We have established a provision matrix that is based on historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
There were no adjustments in impairment allowances of our financial assets as a result of the adoption of the ECL requirements of IFRS 9.
Note 4: Cash Equivalents
Cash equivalents consist of interest bearing deposits with our bank totaling $5,228,103 (December 31, 2017 - $9,204,919). The current annual interest rate earned on these deposits is 1.32% (December 31, 2017 - 1.38%).
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5: Share Capital
Unlimited number of no par value common shares
| Issued: | Shares | Warrants | ||||||
| Number | Amount $ | Number | Amount $ | |||||
| Balance, December 31, 2016 | 121,258,222 | 262,321,825 | - | - | ||||
| Issued pursuant to stock option plan | 801,000 | 536,949 | - | - | ||||
| Issued pursuant to "At the Market" equity distribution agreement (a) | 3,301,500 | 2,348,821 | - | - | ||||
| Issued pursuant to public offering (b) | 16,445,000 | 7,893,600 | 16,445,000 | 3,617,900 | ||||
| Share issue costs | - | (1,391,057 | ) | - | - | |||
| Balance, December 31, 2017 | 141,805,722 | 271,710,138 | 16,445,000 | 3,617,900 | ||||
| Issued pursuant to "At the Market" equity distribution agreement (a) | 519,500 | 553,650 | - | - | ||||
| Share issue costs | - | (33,335 | ) | - | - | |||
| Balance, March 31, 2018 | 142,325,222 | 272,230,453 | 16,445,000 | 3,617,900 |
The following table summarizes our outstanding warrants at March 31, 2018:
| Exercise Price | Outstanding, Beginning of the Period | Granted During the Period | Exercised During the Period | Outstanding, End of the Period | Weighted Average Remaining Contractual Life (years) | |||||||
| $ | 0.95 | 16,445,000 | - | - | 16,445,000 | 4.16 |
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6: Share Based Payments
We have issued stock options to acquire common stock through our stock option plan of which the following are outstanding at March 31:
| 2018 | 2017 | |||||
| Stock Options | Weighted Average Exercise Price $ | Stock Options | Weighted Average Exercise Price $ | |||
| Outstanding, beginning of the period | 6,148,667 | 1.39 | 8,674,227 | 1.83 | ||
| Granted during the period | 2,916,900 | 0.78 | 125,000 | 0.35 | ||
| Forfeited during the period | - | - | (170,000 | ) | 3.76 | |
| Expired during the period | - | - | (17,900 | ) | 2.25 | |
| Outstanding, end of the period | 9,065,567 | 1.19 | 8,611,327 | 1.77 | ||
| Options exercisable, end of the period | 6,420,851 | 1.40 | 6,579,243 | 2.22 |
The following table summarizes information about the stock options outstanding and exercisable at March 31, 2018:
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price $ | Number Exercisable | Weighted Average Exercise Price $ | ||
| $0.26 - $0.42 | 3,437,000 | 8.2 | 0.35 | 2,959,334 | 0.35 | ||
| $0.51 - $0.80 | 3,454,900 | 4.6 | 0.76 | 1,287,850 | 0.76 | ||
| $1.45 - $2.00 | 1,002,667 | 5.4 | 1.77 | 1,002,667 | 1.77 | ||
| $2.13 - $3.89 | 545,500 | 3.5 | 3.42 | 545,500 | 3.42 | ||
| $4.01 - $6.72 | 625,500 | 3.7 | 5.34 | 625,500 | 5.34 | ||
| 9,065,567 | 5.9 | 1.19 | 6,420,851 | 1.40 |
Non-exercisable options vest either annually over periods ranging from one to three years.
The estimated fair value of stock options issued during the period was determined using the Black Scholes Option Pricing Model using the following weighted average assumptions and fair value of options:
| 2018 | 2017 | |
| Risk-free interest rate | 1.88% | 0.92% |
| Expected hold period to exercise | 3.0 years | 3.0 years |
| Volatility in the price of the Company's shares | 84.26% | 86.7% |
| Rate of forfeiture | 3.67% | 3.67% |
| Dividend yield | Nil | Nil |
| Weighted average fair value of options | $0.43 | $0.19 |
We use historical data to estimate the expected dividend yield and expected volatility of our stock in determining the fair value of the stock options. The risk-free interest rate is based on the Government of Canada benchmark bond yield rates in effect at the time of grant and the expected life of the options represents the estimated length of time the options are expected to remain outstanding.
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Incentive Share Award Plan
Restricted Share Units
We have issued restricted share units ("RSUs") to non-employee directors through our incentive share award plan. Grants of RSUs to non-employee directors vest either on the third anniversary date from the grant date or when the director ceases to be a member of the board. We have also issued RSUs to certain officers and employees of the Company. Grants of RSUs to certain officers and employees of the Company vest over a three year period. The following RSUs are outstanding at March 31:
| 2018 | 2017 | |||
| Outstanding, beginning of the period | 1,809,067 | 1,322,829 | ||
| Granted during the period | 64,474 | 38,340 | ||
| Outstanding, end of the period | 1,873,541 | 1,361,169 |
(1)The weighted average fair value of the RSUs granted was $0.66 in 2018 (2017 - $0.69).
Performance Share Units
We have also issued performance share units ("PSUs") to certain officers and employees of the Company. Grants of PSUs require completion of certain performance criteria and cliff vest after 3 years or vest over a three year period, depending on the grant. PSU grants to certain officers will vest immediately upon a change of control of the Company. If certain officers cease employment with the Company, vesting occurs on a pro rata basis prior to the third anniversary of the grant but after the first anniversary. The following PSUs are outstanding at March 31:
| 2018 | 2017 | |||
| Outstanding, beginning of the period | 900,000 | 840,000 | ||
| Granted during the period | - | 60,000 | ||
| Outstanding, end of the period | 900,000 | 900,000 |
(1) The weighted average fair value of the PSUs granted in 2017 was $0.35.
We have reserved 14,232,522 common shares for issuance relating to our outstanding equity compensation plans. Compensation expense related to stock options, RSUs and PSUs for the period ended March 31, 2018 was $539,118 (2017 - $133,889).
Note 7: Loss Per Common Share
Loss per common share is calculated using net loss for the year and the weighted average number of common shares outstanding for the period ended March 31, 2018 of 142,249,733 (2017 - 121,258,222). The effect of any potential exercise of our stock options and warrants outstanding during the year has been excluded from the calculation of diluted loss per common share, as it would be anti-dilutive.
Note 8: Contract Liability and Receivable
Regional licensing agreement
We entered into a regional licensing agreement (the "Agreement") with Adlai Nortye Biopharma Co., Ltd. ("Adlai") in November 2017. Under the terms of the Agreement, Adlai will have exclusive development and commercialization rights to REOLYSIN in China, Hong Kong, Macau, Singapore, South Korea and Taiwan. We are entitled to receive upfront license fees, development and regulatory milestone payments, royalties and sales-based milestone payments.
Warrant purchase agreement
We also entered into a warrant purchase agreement with Adlai. Under the terms of the warrant purchase agreement, we are entitled to receive two milestone payments totaling US$8 million made of of two common share purchase warrants:
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
have the right to call this warrant when the first patient is enrolled in the phase 3 metastatic breast cancer study or six months after execution of the Agreement, whichever is later.
Our contract liability balance, which we expect to record in revenue over the next five years, is as follows:
| March 31, 2018 $ | December 31, 2017 $ | |||
| Balance, beginning of the period | 6,182,580 | - | ||
| Regional licensing agreement | - | 6,182,580 | ||
| Revenue recognized in the period | - | - | ||
| Balance, end of the period | 6,182,580 | 6,182,580 | ||
| Contract liability - current | 927,400 | 1,545,645 | ||
| Contract liability - non-current | 5,255,180 | 4,636,935 | ||
| 6,182,580 | 6,182,580 |
Our contract receivable due from Adlai at March 31, 2018 is $4,899,720 (US$3,800,000).
We are committed to payments totaling $6,652,697 for activities related to our clinical trial, manufacturing and collaboration programs which are expected to occur over the next two years.
We are committed to rental payments (excluding our portion of operating costs and rental taxes) under the terms of our office leases. Annual payments under the terms of these leases are as follows:
| Amount $ | ||
| Remainder of 2018 | 218,247 | |
| 2019 | 255,799 | |
| 2020 | 161,527 | |
| 2021 | 43,130 | |
| 678,703 |
Under a clinical trial agreement entered into with the Alberta Cancer Board ("ACB"), we have agreed to repay the amount funded under the agreement together with a royalty, to a combined maximum amount of $400,000 plus an overhead repayment of $100,000, upon sales of a specified product. We agreed to repay the ACB in annual installments in an amount equal to the lesser of: (a) 5% of gross sales of a specified product; or (b) $100,000 per annum once sales of a specified product commence.
Note 10: Capital Disclosures
Our objective when managing capital is to maintain a strong statement of financial position. We achieve our objective by obtaining adequate cash resources to support planned activities which include the clinical trial program, product manufacturing, administrative costs and intellectual property expansion and protection. We include shareholders' equity and cash and cash equivalents in the definition of capital.
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| March 31, 2018 $ | December 31, 2017 $ | |||
| Cash and cash equivalents | 7,745,255 | 11,836,119 | ||
| Shareholders' equity | 4,743,226 | 8,283,846 |
We do not have any debt other than trade accounts payable and we have potential contingent obligations relating to the completion of our research and development of REOLYSIN.
In managing our capital, we estimate our future cash requirements by preparing a budget and a multi-year plan annually for review and approval by our Board. The budget establishes the approved activities for the upcoming year and estimates the costs associated with these activities. The multi-year plan estimates future activity along with the potential cash requirements and is based on our assessment of our current clinical trial progress along with the expected results from the coming year's activity. Budget to actual variances are prepared and reviewed by management and are presented quarterly to the Board.