Full Press Release Details
Interim Consolidated Financial Statements
Oncolytics Biotech Inc.
March 31, 2019 and 2018
ONCOLYTICS BIOTECH INC.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| As at | Notes | March 31, 2019 $ | December 31, 2018 $ | ||
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 4 | 14,213,811 | 13,699,881 | ||
| Other receivables | 51,696 | 51,650 | |||
| Prepaid expenses | 1,120,919 | 700,986 | |||
| Total current assets | 15,386,426 | 14,452,517 | |||
| Non-current assets | |||||
| Property and equipment | 365,164 | 412,736 | |||
| Right-of-use assets | 3 | 709,610 | - | ||
| Total non-current assets | 1,074,774 | 412,736 | |||
| Total assets | 16,461,200 | 14,865,253 | |||
| Liabilities And Shareholders' Equity | |||||
| Current Liabilities | |||||
| Accounts payable and accrued liabilities | 3,232,289 | 1,825,853 | |||
| Contract liability | 8 | 927,400 | 927,400 | ||
| Other liabilities | 3 | 19,645 | 61,322 | ||
| Lease liabilities | 3 | 358,724 | - | ||
| Total current liabilities | 4,538,058 | 2,814,575 | |||
| Non-current liabilities | |||||
| Contract liability | 8 | 5,802,887 | 5,802,887 | ||
| Other liabilities | 3 | - | 52,428 | ||
| Lease liabilities | 3 | 420,222 | - | ||
| Total non-current liabilities | 6,223,109 | 5,855,315 | |||
| Total liabilities | 10,761,167 | 8,669,890 | |||
| Commitments and contingencies | 9 | ||||
| Shareholders' equity | |||||
| Share capital Authorized: unlimited Issued: March 31, 2019 - 19,046,739 December 31, 2018 - 17,399,749 | 5 | 289,431,837 | 285,193,061 | ||
| Warrants | 5 | 3,617,570 | 3,617,570 | ||
| Contributed surplus | 6 | 28,524,691 | 28,260,613 | ||
| Accumulated other comprehensive income | 548,071 | 607,504 | |||
| Accumulated deficit | (316,422,136 | ) | (311,483,385 | ) | |
| Total shareholders' equity | 5,700,033 | 6,195,363 | |||
| Total liabilities and equity | 16,461,200 | 14,865,253 |
See accompanying notes
ONCOLYTICS BIOTECH INC.
INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
| For the three month period ending March 31, | Notes | 2019 $ | 2018 $ | ||
| Expenses | |||||
| Research and development | 6, 13, 14 | 3,196,920 | 2,934,891 | ||
| Operating | 6, 13, 14 | 1,791,812 | 1,762,553 | ||
| Loss before the following | (4,988,732 | ) | (4,697,444 | ) | |
| Interest income, net | 49,981 | 26,890 | |||
| Loss before income taxes | (4,938,751 | ) | (4,670,554 | ) | |
| Income tax expense | - | (120 | ) | ||
| Net loss | (4,938,751 | ) | (4,670,674 | ) | |
| Other comprehensive (loss) income items that may be reclassified to net loss | |||||
| Translation adjustment | (59,433 | ) | 70,621 | ||
| Net comprehensive loss | (4,998,184 | ) | (4,600,053 | ) | |
| Basic and diluted loss per common share | 7 | (0.27 | ) | (0.31 | ) |
| Weighted average number of shares (basic and diluted) | 7 | 18,425,919 | 14,973,577 |
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, 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 | ||||||
| As at December 31, 2018 | 285,193,061 | 3,617,570 | 28,260,613 | 607,504 | (311,483,385 | ) | 6,195,363 | ||||||
| Net loss and other comprehensive loss | - | - | - | (59,433 | ) | (4,938,751 | ) | (4,998,184 | ) | ||||
| Issued pursuant to incentive share award plan | 5 | 36,845 | - | (36,845 | ) | - | - | - | |||||
| Issued pursuant to Common Stock Purchase Agreement | 5 | 3,562,608 | - | - | - | - | 3,562,608 | ||||||
| Issued pursuant to "At the Market" Agreement | 5 | 710,293 | - | - | - | - | 710,293 | ||||||
| Share based compensation | 6 | - | - | 300,923 | - | - | 300,923 | ||||||
| Share issue costs | 5 | (70,970 | ) | - | - | - | - | (70,970 | ) | ||||
| As at March 31, 2019 | 289,431,837 | 3,617,570 | 28,524,691 | 548,071 | (316,422,136 | ) | 5,700,033 |
See accompanying notes
ONCOLYTICS BIOTECH INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the three month period ending March 31, | Notes | 2019 $ | 2018 $ | ||
| Operating Activities | |||||
| Net loss for the period | (4,938,751 | ) | (4,670,674 | ) | |
| Depreciation - property and equipment | 13 | 48,338 | 19,858 | ||
| Depreciation - right-of-use-assets | 3, 13 | 90,773 | - | ||
| Share based compensation | 6, 13, 14 | 300,923 | 539,118 | ||
| Interest expense on lease liabilities | 3 | 20,414 | - | ||
| Unrealized foreign exchange loss (gain) | 84,028 | (4,513 | ) | ||
| Net change in non-cash working capital | 12 | 1,008,584 | (492,547 | ) | |
| Cash used in operating activities | (3,385,691 | ) | (4,608,758 | ) | |
| Investing Activities | |||||
| Acquisition of property and equipment | (2,766 | ) | (42,619 | ) | |
| Cash used in investing activities | (2,766 | ) | (42,619 | ) | |
| Financing Activities | |||||
| Proceeds from Common Stock Purchase Agreement | 5 | 3,529,672 | - | ||
| Proceeds from "At the Market" equity distribution agreement | 5 | 672,259 | 520,315 | ||
| Payment of lease liabilities | 3 | (123,905 | ) | - | |
| Cash provided by financing activities | 4,078,026 | 520,315 | |||
| Increase (decrease) in cash | 689,569 | (4,131,062 | ) | ||
| Cash and cash equivalents, beginning of period | 13,699,881 | 11,836,119 | |||
| Impact of foreign exchange on cash and cash equivalents | (175,639 | ) | 40,198 | ||
| Cash and cash equivalents, end of period | 14,213,811 | 7,745,255 |
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, 2019, were authorized for issue in accordance with a resolution of the Board of Directors (the "Board") on May 2, 2019. We are a limited company incorporated and domiciled in Canada. Our shares are publicly traded on the Nasdaq Capital Markets and the Toronto Stock Exchange. 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, pelareorep, 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 pelareorep emphasizes three programs: chemotherapy combinations to assist the escape of the virus from the vasculature and enhance its distribution in the tumor; immuno-therapy combinations to create an inflamed phenotype promoting synergies with immune checkpoint inhibitors; and immune modulator/targeted combinations to upregulate natural killer cells promoting synergies with targeted therapies.
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, 2019 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, 2018. 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, 2018, except for the adoption of new standards effective as of January 1, 2019.
Note 3: Significant Accounting Policies
Adoption of New Accounting Standards
IFRS 16 Leases ("IFRS 16") replaces IAS 17 Leases ("IAS 17") and related interpretations for annual periods beginning on or after January 1, 2019. We have adopted IFRS 16 using the modified retrospective approach, under which the cumulative effect of the initial application is recognized in retained earnings at January 1, 2019. We have not restated comparatives for 2018. On transition to IFRS 16, we elected to apply the following practical expedients:
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have elected not to separate fixed non-lease components from lease components and instead account for each lease component and associated fixed non-lease components as a single lease component.
On transition to IFRS 16, the Company recognized $882,437 of lease liabilities. Lease liabilities have been measured by discounting future lease payments using the Company's incremental borrowing rate at January 1, 2019 as rates implicit in the leases were not readily determinable. The weighted-average rate applied is 15%.
The following table summarizes the impacts of adopting IFRS 16 on the consolidated financial statements:
| Impact of changes | ||||||
| As reported as at December 31, 2018 | Effects of IFRS 16 transition | Subsequent to transition as at January 1, 2019 | ||||
| Right-of-use assets | - | 808,025 | 808,025 | |||
| Other current and non-current assets | 14,865,253 | - | 14,865,253 | |||
| Total assets | 14,865,253 | 808,025 | 15,673,278 | |||
| Other liabilities | 113,750 | (74,412 | ) | 39,338 | ||
| Lease liabilities | - | 882,437 | 882,437 | |||
| Other current and non-current liabilities | 8,556,140 | - | 8,556,140 | |||
| Total liabilities | 8,669,890 | 808,025 | 9,477,915 | |||
| Total shareholders' equity | 6,195,363 | - | 6,195,363 |
Prior to adopting IFRS 16, our total minimum operating lease commitments as at December 31, 2018 were $961,575. The difference between the total of the minimum lease payments set out in Note 11 of our 2018 annual consolidated financial statements and the total lease liabilities recognized on transition was a result of the effect of discounting on the minimum lease payments.
Explanatory information
Our portfolio of leases consists of office spaces. We currently do not have leases with variable lease payments, residual value guarantees, extension or termination options, or leases not yet commenced to which we are committed to. Our total undiscounted lease liability as at March 31, 2019 is as follows:
| Maturity analysis - contractual undiscounted cash flows | ||
| March 31, 2019 | ||
| Less than one year | 451,712 | |
| One to five years | 462,083 | |
| More than five years | - | |
| Total undiscounted lease liability as at March 31 2019 | 913,795 |
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At inception of a contract, we assess whether a contract is, or contains a lease by determining whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assess whether:
A right-of-use asset and corresponding lease liability is recognized on the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is reduced by impairment losses and adjusted for certain remeasurements of the lease liabilities, if any.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the implicit interest rate in the lease. If the rate cannot be readily determined, our incremental rate of borrowing is used. The lease liability is subsequently measured at amortized cost using the effective interest method. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in our estimate of the amount expected to be payable under a residual value guarantee, if we change our assessment of whether we will exercise a purchase, extension or termination option, or if the underlying lease contract is amended.
We have elected not to separate fixed non-lease components from lease components and instead account for each lease component and associated fixed non-lease components as a single lease component.
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. We recognize the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Significant Judgments, Estimates and Assumptions
We make judgments in determining whether a contract contains an identified asset. The identified asset should be physically distinct or represent substantially all of the capacity of the asset, and should provide us with the right to substantially all of the economic benefits from the use of the asset.
We also make judgments in determining whether or not we have the right to control the use of the identified asset. We have that right when we have the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decisions about how and for what purpose the asset is used are predetermined, we have the right to direct the use of the asset if we have the right to operate the asset or if we designed the asset in a way that predetermines how and for what purpose the asset will be used.
We make judgments in determining the incremental borrowing rate used to measure our lease liability for each lease contract, including an estimate of the asset-specific security impact. The incremental borrowing rate should reflect the interest that we would have to pay to borrow at a similar term and with a similar security.
Note 4: Cash Equivalents
Cash equivalents consist of interest bearing deposits with our bank totaling $12,018,225 (December 31, 2018 - $9,977,409). The current annual interest rate earned on these deposits is 2.41% (December 31, 2018 - 2.71%).
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5: Share Capital
Unlimited number of no par value common shares.
Share Consolidation:
On May 22, 2018, we completed the consolidation of our common shares on the basis of 9.5 pre-consolidation common shares for each one post-consolidation common share (the "Share Consolidation"). Fractional interests were rounded down to the nearest whole number of common shares. Outstanding stock options, restricted share units and performance share units were similarly adjusted by the consolidation ratio. Outstanding warrants were adjusted such that, following the Share Consolidation, 9.5 warrants issued in 2017 will entitle the holder to purchase one whole common share until June 1, 2022.
| Issued: | Shares | Warrants | ||||||
| Number | Amount $ | Number | Amount $ | |||||
| 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 | ) | - | - | |||
| Issued pursuant to stock option plan | 71,000 | 38,269 | - | - | ||||
| Balance, May 22, 2018 - pre-consolidation | 142,396,222 | 272,268,722 | 16,445,000 | 3,617,900 | ||||
| Balance, May 22, 2018 - post-consolidation | 14,988,995 | 272,268,722 | 16,445,000 | 3,617,900 | ||||
| Issued pursuant to public offering (b) | 1,532,278 | 11,606,882 | - | - | ||||
| Issued pursuant to warrant agreement | 157 | 1,747 | (1,500 | ) | (330 | ) | ||
| Issued pursuant to stock option plan | 34,329 | 158,976 | - | - | ||||
| Issued pursuant to incentive share award plan | 28,297 | 109,751 | - | - | ||||
| Issued pursuant to Common Stock Purchase Agreement (c) | 797,691 | 3,314,097 | - | - | ||||
| Issued pursuant to "At the Market" equity distribution agreement (d) | 18,002 | 66,360 | - | - | ||||
| Share issue costs | - | (2,333,474 | ) | - | - | |||
| Balance, December 31, 2018 | 17,399,749 | 285,193,061 | 16,443,500 | 3,617,570 | ||||
| Issued pursuant to incentive share award plan | 13,034 | 36,845 | - | - | ||||
| Issued pursuant to Common Stock Purchase Agreement (c) | 1,390,372 | 3,562,608 | - | - | ||||
| Issued pursuant to "At the Market" equity distribution agreement (d) | 243,584 | 710,293 | - | - | ||||
| Share issue costs | - | (70,970 | ) | - | - | |||
| Balance, March 31, 2019 | 19,046,739 | 289,431,837 | 16,443,500 | 3,617,570 |
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the period ending March 31, 2019, we sold 1,379,024 (March 31, 2018 - nil) common shares for gross proceeds of US$2,663,768 (March 31, 2018 - nil) and issued 11,348 commitment shares (March 31, 2018 - nil). The commitment shares have been valued at fair value of US$21,998 (March 31, 2018 - nil) and have been recorded as share issue costs in addition to cash share issue costs of $3,757 (March 31, 2018 - nil).
The following table summarizes our outstanding warrants at March 31, 2019:
| 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) | |||||||
| $ | 9.025 | 16,443,500 | - | - | 16,443,500 | 3.17 |
(1) Exercisable into 1,730,894 common shares.
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:
| 2019 | 2018 | |||||
| Stock Options | Weighted Average Exercise Price $ | Stock Options | Weighted Average Exercise Price $ | |||
| Outstanding, beginning of the period | 1,249,361 | 8.73 | 647,156 | 13.20 | ||
| Granted during the period | - | - | 307,027 | 7.41 | ||
| Forfeited during the period | (1,841 | ) | 6.56 | - | - | |
| Outstanding, end of the period | 1,247,520 | 8.73 | 954,183 | 11.34 | ||
| Options exercisable, end of the period | 841,439 | 10.74 | 675,796 | 13.29 |
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about the stock options outstanding and exercisable at March 31, 2019:
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price $ | Number Exercisable | Weighted Average Exercise Price $ | ||
| $2.47 - $3.99 | 711,827 | 5.70 | 3.21 | 447,494 | 3.25 | ||
| $4.84 - $7.81 | 333,251 | 3.50 | 7.21 | 191,503 | 7.20 | ||
| $13.77 - $19.00 | 92,308 | 4.38 | 16.94 | 92,308 | 16.94 | ||
| $20.23 - $36.96 | 51,777 | 2.47 | 32.29 | 51,777 | 32.29 | ||
| $38.09 - $63.84 | 58,357 | 2.68 | 50.85 | 58,357 | 50.85 | ||
| 1,247,520 | 4.74 | 8.73 | 841,439 | 10.74 |
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:
| 2019 | 2018 | |
| Risk-free interest rate | N/A | 1.88% |
| Expected hold period to exercise | N/A | 3.0 years |
| Volatility in the price of the Company's shares | N/A | 84.26% |
| Rate of forfeiture | N/A | 3.67% |
| Dividend yield | N/A | Nil |
| Weighted average fair value of options | N/A | $4.06 |
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.
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 immediately, 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:
| 2019 | 2018 | |||
| Outstanding, beginning of the period | 260,755 | 190,407 | ||
| Granted during the period | 9,113 | 6,786 | ||
| Vested during the period | (10,929 | ) | - | |
| Outstanding, end of the period | 258,939 | 197,193 |
(1)The weighted average fair value of the RSUs granted was $2.48 in 2019 (2018 - $6.27).
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
| 2019 | 2018 | |||
| Outstanding, beginning of the period | 63,156 | 94,734 | ||
| Vested during the period | (2,105 | ) | - | |
| Outstanding, end of the period | 61,051 | 94,734 |
We have reserved 1,904,674 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, 2019 was $300,923 (2018 - $539,118).
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, 2019 of 18,425,919 (2018 - 14,973,577). 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 "Licensing Agreement") with Adlai Nortye Biopharma Co., Ltd. ("Adlai") in November 2017. Under the terms of the Licensing Agreement, Adlai will have exclusive development and commercialization rights to pelareorep 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. As at March 31, 2019, we were entitled to the following:
ONCOLYTICS BIOTECH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our contract liability balance, which we expect to record in revenue over the next five years, is as follows: