For the quarter ended June 30, 2009

Second Quarter Report

For the quarter ended June 30, 2009

The second quarter of 2009 was highlighted by the announcement of additional positive clinical trial results in our monotherapy and combination trials and the successful completion of two transactions that added net proceeds of approximately $8 million. These positive clinical results continue to demonstrate the potential of

REOLYSIN as a cancer therapeutic, and support the direction of the pivotal program for REOLYSIN.

ASCO Showcases REOLYSIN Results

Three posters detailing results of REOLYSIN clinical trials were presented at the American Society of Clinical Oncology (ASCO) annual meeting in June. The results of these trials, and the response and clinical benefit rates as reported by our investigators, reinforce our belief that REOLYSIN has the potential to significantly

improve treatment outcomes in patients with a broad range of cancers.

ASCO Poster Presentations

Updated results of our U.S. Phase II sarcoma trial were presented at ASCO. The results demonstrated that the treatment was well tolerated, with 15 of 36, or 42% of evaluable patients experiencing stable disease for more than 16 weeks, including five patients who had stable disease for more than 24 weeks, and one patient who had

stable disease for greater than 80 weeks. Patient enrolment in this multi-centre trial was completed in May.

Results of a U.K. Phase I REOLYSIN and gemcitabine trial were also presented at ASCO. The results demonstrated that the combination of REOLYSIN and gemcitabine was well tolerated and resulted in a clinical benefit rate (stable disease + partial response + complete response) of 70% of the evaluable patients.

A third ASCO poster detailed the results of an earlier, U.S. Phase I REOLYSIN trial for patients with advanced solid tumors. Of 18 patients treated in the trial, eight demonstrated stable disease or better, including one patient with progressive breast cancer who experienced a partial response.

REOLYSIN/Radiation Combination Reports 93% Clinical Benefit Rate

Positive results of our U.K. Phase II REOLYSIN and radiation clinical trial were also announced in the quarter. Of 14 evaluable patients in this trial, 13 patients had stable disease or better in the treated target lesions. Of these, partial responses were observed in four patients and minor responses were observed

in two patients for a total clinical benefit rate of 93% in the treated lesions.

U.K. Phase II Trial Enrolment Completed

Just subsequent to the quarter end, we announced the completion of patient enrolment in the Phase II component of our U.K. combination REOLYSIN and paclitaxel/carboplatin head and neck cancer trial. A total of 30 patients have been treated in the Phase I/II trial (REO 011), including 23 head and neck cancer patients. Of these

head and neck patients, 17 patients have been treated in the Phase II portion of the trial.

Interim results reported in March 2009 demonstrated that of 12 head and neck patients evaluable for clinical response, five had experienced a partial response and four had experienced stable disease ranging from two to six months, for a clinical benefit rate of 75%.

An independent, confirmatory Phase II trial using the same combination of REOLYSIN and carboplatin/paclitaxel for patients with head and neck cancers is currently underway in the U.S., as is a Phase II trial for patients with non-small cell lung cancer.

Financial Position Strengthened Through Two Transactions

In April, we completed an acquisition of an inactive private company in exchange for 1,875,121 common shares of Oncolytics. The private company had approximately $2.1 million in net cash at the closing of the transaction. In May, we announced the successful completion of an equity financing that consisted of 3.45 million

units, including the full exercise of an overallotment option of 450,000 units at $2.00 per unit, for gross proceeds of $6.9 million. Each unit is comprised of one common share and one common share purchase warrant. Current cash reserves are sufficient to fund operations well into 2010.

Lyophilization Formulation Completed

Subsequent to the quarter end, we announced that we had completed the lyophilization (freeze-drying) formulation development program for REOLYSIN. Lyophilized product is the standard end use formulation for commercial use of the product.

We look forward to updating you on progress in our clinical program and particularly our pivotal program in the next few quarters.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements of Oncolytics Biotech Inc. as at and for the three and six months ended June 30, 2009 and 2008, 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, 2008. 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 and under applicable Canadian provincial securities legislation. Forward-looking statements, including our belief as to the potential of REOLYSIN ,

a therapeutic reovirus, as a cancer therapeutic and our expectations as to the success of our research and development and manufacturing programs in 2009 and beyond, future financial position, business strategy and plans for future operations, and statements that are not historical facts, involve known and unknown risks and uncertainties, which could cause our actual results to differ materially from those in the forward-looking statements.

Such risks and uncertainties include, among others, the need for and availability of funds and resources to pursue research and development projects, the efficacy of REOLYSIN as a cancer treatment, the success and timely completion of clinical studies and

trials, our ability to successfully commercialize REOLYSIN , uncertainties related to the research, development and manufacturing of pharmaceuticals, uncertainties related to competition, changes in technology, the regulatory process and general changes to the economic environment.

With respect to the forward-looking statements made within this MD&A, we have made numerous assumptions regarding among other things: our ability to obtain financing to fund our development program, our ability to receive regulatory approval to commence enrollment in our clinical trial program, the final results of our co-therapy clinical

trials, our ability to maintain our supply of REOLYSIN and future expense levels being within our current expectations.

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 except as required by applicable law.

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 activities on the development of REOLYSIN , our potential cancer therapeutic. We have not been profitable since our inception

and expect to continue to incur substantial losses as we continue our research and development. 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 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. There can be no assurance that these reliances and relationships will continue as required.

In addition to developmental and operational considerations, market prices for securities of biotechnology companies generally are volatile, and may or may not move in a manner consistent with the progress being made by Oncolytics.

See also "RISK Factors Affecting Future Performance" in our 2008 MD&A.

REOLYSIN Development Update for the Second Quarter of 2009

We continue to develop our lead product REOLYSIN as a potential cancer therapy. Our goal each year is to advance REOLYSIN through the various steps and stages

of development required for potential pharmaceutical products. In order to achieve this goal, we actively manage the development of our clinical trial program, our pre-clinical and collaborative programs, our manufacturing process and supply, and our intellectual property.

Clinical Trial Program

We began the second quarter of 2009 with 10 clinical trials that are being sponsored by us which are in varying stages of patient enrollment. We also have two clinical trials sponsored by the American National Cancer Institute and one by the University of Leeds. As well, our clinical program includes a research collaboration

of up to five additional clinical trials with the Cancer Therapy & Research Center at The University of Texas Health Center in San Antonio.

During the second quarter of 2009, we completed patient enrollment and announced positive clinical trial results in our U.S. Phase II Sarcoma study and announced final clinical trial results from our U.K. Phase II REOLYSIN in combination with radiation

clinical trial. We continued to progress through the process of obtaining approval for a Phase III clinical trial.

Of our ten sponsored trials, we exited the second quarter of 2009 with four trials still enrolling patients, two with patients still being re-treated and four trials that have completed patient enrollment and re-treatments.

Clinical Trial Program - Results

U.S. Phase II Sarcoma Clinical Trial

During the second quarter of 2009, we completed enrollment in our U.S. Phase II sarcoma clinical trial and positive interim results were presented. Dr. Monica Mita, one of our principal investigators, delivered a presentation entitled "A Phase II Study of Intravenous REOLYSIN (Wild-type Reovirus) in the Treatment of Patients

with Bone and Soft Tissue Sarcomas Metastatic to the Lung" at the 2009 American Society of Clinical Oncology ("ASCO") annual meeting held in Orlando, Florida.

The interim results demonstrated that the treatment has been well tolerated, with 15 of 36, or 42% of evaluable patients experiencing stable disease for more than 16 weeks. Five of these evaluable patients had stable disease for more than 24 weeks and one patient had stable disease for more than 80 weeks. Re-treatments

and further patient evaluation is expected to continue throughout 2009.

U.K. Phase II Combination REOLYSIN and Radiation Clinical Trial

During the second quarter of 2009, we announced positive results in our U.K. Phase II clinical trial to evaluate the objective tumour response rate of REOLYSIN in combination with low-dose radiation in patients with advanced cancers. A total

of 16 heavily pretreated patients with advanced cancer (5 - melanoma, 4 - colorectal, 1 of each gastric, pancreas, ovarian, lung, cholangiocarcinoma, sinus and thyroid) were enrolled in this trial. Most patients had received prior chemotherapy and/or radiation. Of 14 patients evaluable for response, 13 patients had stable disease or better in the treated target lesions. Of these, partial responses were observed in four patients (lung, melanoma (2) and gastric) and minor responses

were observed in two patients (thyroid, ovarian), for a total disease control rate (stable disease + partial response + complete response) of 93% in the treated lesions. The combination was well tolerated, with only mild (Grade 1 or 2) toxicities noted.

This trial was an open-label, single-arm, multi-centre Phase II study of REOLYSIN delivered via intratumoural injection to patients during treatment with low-dose fractionated radiotherapy. 20 Gy of radiation was given in five consecutive daily

4 Gy fractions combined with two intratumoural injections of REOLYSIN (1x1010 TCID50) on days two and four. The primary endpoint was objective tumour response rate in treated lesions. Secondary endpoints were to evaluate viral replication, immune response,

and safety. Eligible patients included those diagnosed with advanced or metastatic cancers that are refractory ("have not responded") to standard therapy or for which no curative standard therapy exists.

Manufacturing and Process Development

During the second quarter of 2009, we completed our first 100-litre production run of REOLYSIN under cGMP conditions. The product from this 100-litre run will subsequently be packaged and is expected to be sufficient to supply an initial Phase

III clinical trial program. As well, we successfully completed our lyophilization ("freeze-drying") formulation development program. This is one of the final steps in the development of our manufacturing process as lyophilized product is expected to be the standard end use formulation for commercial use.

Intellectual Property

During the second quarter of 2009, one Canadian patent (#2,425,749) was issued. The claims for this patent titled "Method of Producing Infectious Reovirus" describe a method of producing infectious mammalian reovirus which is suitable for clinical administration to mammals, including humans. At the end

of the second quarter of 2009, we had been issued over 200 patents including 31 U.S. and 11 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.

Acquisition of Inactive Private Company

During the second quarter of 2009, we completed the acquisition of an inactive private company. The cash available from the private company, at the time of closing, was $2.13 million and we issued 1,875,121 common shares in our capital based on a previously determined exchange ratio of $1.69. Net proceeds from this

acquisition were $1.8 million.

In the second quarter of 2009, we closed a public offering whereby we issued 3,450,000 units at $2.00 per unit for gross proceeds of $6.9 million. Each unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share at an exercise price

of $2.40 per share for a three year period, subject to an acceleration of the expiry date in certain circumstances. Net cash proceeds from this public offering were $6.2 million.

We estimated at the beginning of 2009 and in conjunction with our available cash resources that our cash requirements to fund our base level of activity for 2009 would be approximately $11,000,000. During the second quarter of 2009, we raised an additional $8.3 million through our financing activities. As a result,

we re-evaluated and expanded our planned research and development to include additional clinical and manufacturing activities. Additional clinical activities include increasing patient enrollment in certain clinical trials and increasing related clinical trial support costs. Additional manufacturing activities include the 100-litre production run that was completed in the second quarter of 2009, the requisite fill, label, and packaging of our 100-litre run and expanded process

validation studies. We estimate that the cost of this additional activity for 2009 will be approximately $4.0 million. We also expect to reduce our accounts payable and accrued liabilities balance by $1.0 million when compared to the end of 2008. As a result, our combined cash requirement for 2009 is expected to increase to $16,000,000 (see "Liquidity and Capital Resources").

Our cash usage for the six month period ending June 30, 2009 was $9,635,852 from operating activities which included net cash usage from non-cash working capital of $1,578,220 and $3,349 for the purchases of capital assets. Our cash usage for the first half of 2009 is in line with our expanded operating activities. We

now expect to complete enrollment in our own sponsored trials in 2009 except our non-small cell lung cancer co-therapy trial which is expected to enroll into 2010. Our net loss for the first half of 2009 was $8,292,403.

We exited the second quarter of 2009 with cash resources totaling $11,983,352 (see "Liquidity and Capital Resources").

Expected REOLYSIN Development for the Remainder of 2009

We have set out our planned development for REOLYSIN in 2009 into separate levels of activity. Our planned base level of activity in 2009 continues to include the completion of the remainder of those clinical trials which we sponsor except for

our U.S. Phase II non-small cell lung cancer trial which is expected to enroll into 2010. Our base level manufacturing program continues to focus on filling, labeling, packaging and shipping our product to the various clinical sites as required, performing process validation studies and completing the lyophilization studies that were in process at the end of 2008.

SECOND QUARTER RESULTS OF OPERATIONS

(for the three months ended June 30, 2009 and 2008)

Net loss for the three month period ending June 30, 2009 was $4,334,757 compared to $5,254,530 for the three month period ending June 30, 2008.

Research and Development Expenses ("R&D")

Clinical Trial Program

During the second quarter of 2009, our direct clinical trial expenses decreased to $1,074,153 compared to $1,603,171 for the second quarter of 2008. During the second quarter of 2009, we continued to complete patient enrollment in our Phase II clinical trial program. At the end of the second quarter of 2009, we had

four trials enrolling patients compared to eight clinical trials enrolling in the second quarter of 2008.