For the quarter ended June 30, 2010

First Quarter Report

Oncolytics Biotech Inc.

Second Quarter Report

For the quarter ended June 30, 2010

In the second quarter of 2010 we reached a number of key clinical milestones, most notably the opening of enrollment in our Phase 3 clinical study examining REOLYSIN in combination with paclitaxel and carboplatin in patients with platinum-refractory head and neck cancers. This registration study is our prime focus and we have expanded into other jurisdictions beyond the U.K. and the U.S.A. to include both Belgium and Canada.

Positive Clinical Trial Results

At the American Society of Clinical Oncology ("ASCO") 2010 Annual Meeting in early June we reported new survival data from our Phase I/II U.K. trial (REO 011) of REOLYSIN combined with paclitaxel/carboplatin in patients with advanced cancers with emphasis on the squamous cell carcinoma of the head and neck. The mean overall survival ("OS") in 24 treated head and neck cancer patients was more than eight months, with four patients still alive when the data was reported. The mean OS of the patients experiencing partial response ("PR") and PR plus stable disease ("SD") was statistically significantly greater than the mean survival of those patients experiencing progressive disease (hazard ratio 0.2, p=0.0249 and hazard ratio 0.27, p=0.04, respectively, with a 95% confidence interval). Although this data was derived from a single arm study, we feel it is both compelling and supportive of our decision to advance into a pivotal trial in this indication and we are hopeful we can duplicate these types of results in our Phase 3 study.

During the quarter, a paper entitled "Two-Stage Phase I Dose-Escalation Study of Intratumoural Reovirus Type 3 Dearing and Palliative Radiotherapy in Patients with Advanced Cancers," was published in the online version of the journal Clinical Cancer Research. The paper covered the final results from our Phase Ia/Ib U.K. clinical trial (REO 006) investigating the intratumoural delivery of REOLYSIN in combination with radiation to treat patients with advanced cancers. A total of 23 patients received a range of two to six intratumoural doses of REOLYSIN at escalating dosages up to a maximum of 1x1010 TCID50 with a constant localized radiation dose of either 20 Gy or 36 Gy. Of the seven evaluable patients in the low-dose (20Gy) radiation group, two patients had a PR (esophageal adenocarcinoma and squamous cell carcinoma (SCC) of the skin) and five had SD including patients with malignant melanoma, pancreatic adenocarcinoma, SCC of the larynx and SCC of the skin (2). In the high-dose (36Gy) radiation group, five of seven evaluable patients had PRs (malignant melanoma (2), lung adenocarcinoma, colorectal adenocarcinoma, and ovarian adenocarcinoma) and two had SD (malignant melanoma). These results suggest that REOLYSIN may be active in a range of cancer types.

Expanding Clinical Program

We continue to look for opportunities to advance into additional cancer indications based on observed activity from our clinical trial program. During the second quarter we announced that the Cancer Therapy & Research Center at the University of Texas Health Science Center in San Antonio (CTRC) had started patient enrolment in a U.S. Phase 2 clinical trial (REO 017) using intravenous administration of REOLYSIN in combination with gemcitabine (Gemzar ) in patients with advanced pancreatic cancer. The Principal Investigator for the trial is Dr. Monica Mita of the CTRC. This study joins two other studies at CTRC that are already enrolling patients; a Phase 2 clinical trial using intravenous administration of REOLYSIN in combination with carboplatin and paclitaxel in patients with squamous cell carcinoma of the lungs (SCC lung cancer) (REO 021), and a Phase 2 clinical trial using intravenous administration of REOLYSIN in combination with paclitaxel and carboplatin in patients with metastatic melanoma (REO 020).

In May, we also announced that following submission to the U.S. FDA for review, the Company was initiating a U.S. Phase I study of REOLYSIN in combination with FOLFIRI (Folinic Acid (leucovorin) + Fluorouracil (5-FU) + Irinotecan) in patients with oxaliplatin refractory/intolerant Kras mutant colorectal cancer (REO 022). The principal investigator is Dr. Sanjay Goel of the Montefiore Medical Center at The Albert Einstein College of Medicine in New York.

At the end of the second quarter of 2010, our clinical trial program is currently examining head and neck, non-small cell lung, pancreatic, colorectal, melanoma, and squamous cell carcinoma of the lung cancers among others.

Our focus for the balance of the year will be the advancement of our Phase 3 study in head and neck cancers, our first registration study. As well, we will continue to examine opportunities to expand into other the cancer indications as we believe REOLYSIN may be effective in treating a variety of cancers.

Our fundamentals remain strong and we continue to report positive clinical and operational developments. We would like to thank all stakeholders for their ongoing support as we advance through our first Phase 3 clinical trial.

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, 2010 and 2009, 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, 2009. 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 2010 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 2009 MD&A.

REOLYSIN Development Update for the Second Quarter of 2010

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 2010 with nine clinical trials, either enrolling patients or approved to commence enrollment. We currently sponsor four of these trials which includes our Phase III head and neck clinical trial associated with our Special Protocol Assessment agreement with the U.S. Food and Drug Administration ("FDA"). The other five clinical trials are sponsored by the U.S. National Cancer Institute ("NCI"), the Cancer Therapy & Research Center at The University of Texas Health Center in San Antonio ("CTRC") and the University of Leeds ("Leeds").

During the second quarter of 2010, we opened patient enrollment in our Phase III head and neck clinical trial and continued to expand into other jurisdictions receiving approval to conduct this trial by the Belgian Federal Agency for Medicines and Health Products ("FAMHP"). As well, we expanded our clinical trial program to include a Phase I colorectal cancer study and a Phase II pancreatic cancer clinical trial. We also presented positive updated results from our U.K. Phase I/II clinical trial focused on the head and neck at the ASCO annual meeting. Finally, we completed patient enrollment in the Phase I portion of our U.S. Phase I/II recurrent malignant glioma clinical trial.

We exited the second quarter of 2010 with ten clinical trials of which four are sponsored by us and the remainder are sponsored by the NCI, CTRC, and Leeds. Our clinical trial program is currently examining head and neck, non-small cell lung, pancreatic, colorectal, melanoma, and squamous cell carcinoma of the lung cancers among others.

Clinical Trial - Phase 3 Head and Neck Pivotal Trial

During the second quarter of 2010, we continued to expand the number of jurisdictions of our Phase 3 head and neck pivotal trial to include Belgium. We have approval to conduct our Phase III trial in the U.S., U.K. and Belgium. As well, we opened up patient enrollment. This is the same trial that we previously reached an agreement on with the FDA under the SPA process.

This trial is a randomized, two-arm, double-blind, multicentre, two-stage, adaptive Phase 3 trial that will assess the intravenous administration of REOLYSIN with the chemotherapy combination of paclitaxel and carboplatin versus the chemotherapy alone in patients with metastatic or recurrent squamous cell carcinoma of the head and neck, or squamous cell cancer of the nasopharynx, who have progressed on or after prior platinum-based chemotherapy. All patients will receive treatment every three weeks (21 day cycles) with paclitaxel and carboplatin and will also receive, on a blinded basis, either intravenous placebo or intravenous REOLYSIN . All dosing takes place in the first five days of each cycle with all patients receiving standard intravenous doses of paclitaxel and carboplatin on day one only, and on days one through five, either intravenous placebo or intravenous REOLYSIN at a dose of 3x1010 TCID50. Patients may continue to receive the trial combination therapy for up to eight, 21-day cycles and, thereafter, blinded placebo or blinded REOLYSIN until the patient has progressive disease or meets other criteria for removal from the trial.

The primary endpoint for the trial is overall survival (OS); secondary endpoints include progression free survival (PFS), objective response rate (complete response (CR) + partial response (PR)) and duration of response, and safety and tolerability of REOLYSIN when administered in combination with paclitaxel and carboplatin. The first stage of the trial is designed to enroll 80 patients. The second stage is adaptive, and is designed to enroll between 100 and 400 patients with the most probable statistical enrolment being 195 patients in this stage. This adaptive trial design allows frequent data evaluation to determine if the probability of reaching a statistically significant endpoint has been achieved.

The decision to pursue a Phase III trial in head and neck cancers was predicated on positive results seen in our Phase I and Phase II combination REOLYSIN and paclitaxel/carboplatin clinical trials, as well as significant preclinical work demonstrating synergy in combination with taxane or platinum-based drugs. Updated results from the U.K. Phase I/II trial reported in November 2009 demonstrated an overall response rate (PR and CR) of 42% and a total clinical benefit rate (PR + CR + stable disease) of 74%.

Clinical Trial Program - Results

U.K. Phase I/II REOLYSIN in Combination with Paclitaxel/Carboplatin

During the second quarter of 2010, a poster was presented covering updated results of our Phase I/II U.K. clinical trial of REOLYSIN combined with paclitaxel/carboplatin for patients with advanced cancers at the ASCO 2010 Annual Meeting in Chicago, IL.

The poster entitled "Phase I/II Study of Oncolytic Reovirus Plus Carboplatin/Paclitaxel in Patients with Advanced Solid Cancers with Emphasis on Squamous Cell Carcinoma of the Head and Neck," (SCCHN) updated our previously disclosed interim data to include new overall survival data.

The researchers reported that 31 patients were enrolled (24 males; median age 59 years) with head and neck cancer (n=24), melanoma (n=4), peritoneal/endometrial cancer (n=2), or sarcoma (n=1). In the dose-escalation phase of the study, there were no dose-limiting toxicities. Grade 3/4 toxicities included anaemia, leucopenia, neutropenia, lymphopenia, thrombocytopenia, infection and hypotension. In the Phase II study, PR were noted in two of five patients with head and neck cancer. The Phase II study treated head and neck cancer patients at the maximum dose level (3 x 1010 TCID50) in order to further assess tumour response. In total, 19 patients with head and neck cancer received at least two cycles and were evaluable for response. Most were SCCHN patients refractory to previous platinum-based chemotherapy for recurrent/metastatic disease. Partial responses were seen in eight patients (42%) and stable disease (SD) in six (32%). One additional PR and one SD were observed among four patients with malignant melanoma.

The mean overall survival (OS) in 24 treated head and neck cancer patients is more than eight months, with four patients still alive at the time of the presentation. The mean OS of the patients experiencing PR and PR plus SD is statistically significantly greater than the mean survival of those patients experiencing progressive disease (PD) (hazard ratio 0.2, p=0.0249 and hazard ratio 0.27, p=0.04, respectively, with a 95% confidence interval).

The researchers concluded that intravenous administration of reovirus in combination with carboplatin/paclitaxel is a safe and well-tolerated combination with promising anticancer activity in SCCHN. Further evaluation of this combination in a randomized Phase III trial in SCCHN is underway.

U.K. Phase Ia/Ib REOLYSIN in Combination with Radiotherapy Clinical Trial

During the second quarter of 2010, a paper entitled "Two-Stage Phase I Dose-Escalation Study of Intratumoural Reovirus Type 3 Dearing and Palliative Radiotherapy in Patients with Advanced Cancers," was published in the online version of the journal Clinical Cancer Research.

The paper covers final results from our Phase Ia/Ib U.K. clinical trial investigating the intratumoural delivery of REOLYSIN in combination with radiation to treat patients with advanced cancers. A total of 23 patients received a range of two to six intratumoural doses of REOLYSIN at escalating dosages up to a maximum of 1x1010 TCID50 with a constant localized radiation dose of either 20 Gy or 36 Gy. The principal investigator for the study was Dr. Kevin Harrington from The Institute of Cancer Research and The Royal Marsden Hospital, London, U.K.

Of the seven evaluable patients in the low-dose (20Gy) radiation group, two patients had a partial response ("PR") (esophageal adenocarcinoma and squamous cell carcinoma (SCC) of the skin) and five had stable disease ("SD") including patients with malignant melanoma, pancreatic adenocarcinoma, SCC of the larynx and SCC of the skin (2). In the high-dose (36Gy) radiation group, five of seven evaluable patients had PR (malignant melanoma (2), lung adenocarcinoma, colorectal adenocarcinoma, and ovarian adenocarcinoma) and two had SD (malignant melanoma).

The primary objective of the trial was to determine the maximum tolerated dose (MTD), dose limiting toxicity (DLT), and safety profile of REOLYSIN when administered intratumourally to patients receiving radiation treatment. A secondary objective was to examine any evidence of anti-tumour activity. The treatment was well tolerated in all cohorts, with no DLTs, and no MTD was reached.

Clinical Trial Program - Clinical Collaboration

U.S. Phase 2 Pancreatic Cancer Clinical Trial

During the second quarter of 2010, we announced that CTRC started patient enrolment in a U.S. Phase 2 clinical trial using intravenous administration of REOLYSIN in combination with gemcitabine (Gemzar ) in patients with advanced pancreatic cancer. The Principal Investigator is Dr. Monica Mita of the CTRC.

This trial is a single arm, open-label, Phase II study of REOLYSIN given intravenously with gemcitabine every three weeks. Up to 33 patients are expected to be treated in this trial. Eligible patients include those with advanced or metastatic pancreatic cancer with measurable disease who have not received any prior chemotherapy or biotherapy.

The primary objective of the Phase II trial is to determine the clinical benefit rate (complete response + partial response + stable disease) of intravenous multiple doses of REOLYSIN in combination with gemcitabine in patients with advanced or metastatic pancreatic cancer. The secondary objectives are to determine the progression-free survival, and to determine the safety and tolerability of REOLYSIN when administered in combination with gemcitabine.

This trial is the third of five clinical trials with the CTRC under our broad preclinical and clinical collaboration contract. Our collaboration with CTRC will involve up to five, open-label, Phase 2 studies exploring the use of REOLYSIN in combination with chemotherapy for various cancer indications.

Clinical Trial Program - Additional Cancer Indications

U.S. Phase 1 Colorectal Cancer Clinical Trial

During the second quarter of 2010, we expanded the cancer indications we are studying to include colorectal cancer by initiating a U.S. Phase 1 study of REOLYSIN in combination with FOLFIRI (Folinic Acid (leucovorin) + Fluorouracil (5-FU) + Irinotecan) in patients with oxaliplatin refractory/intolerant Kras mutant colorectal cancer. The principal investigator is Dr. Sanjay Goel of the Montefiore Medical Center at The Albert Einstein College of Medicine in New York.

The trial is a Phase I dose escalation study with three dose levels and cohorts of three to six patients to determine a maximum tolerated dose and dose-limiting toxicities with the combination of REOLYSIN and FOLFIRI. FOLFIRI will be administered on the first day of a two week (14 day) cycle, while REOLYSIN will be administered on days one through five of a four week (28 day) cycle. Eligible patients include those with histologically confirmed cancer of the colon or rectum with Kras mutation and measurable disease. They must have progressed on or within 190 days after last dose of oxaliplatin regimen as front-line therapy in the metastatic setting or be intolerant to oxaliplatin.

The clinical rationale for conducting this study was based on positive efficacy results seen in a range of our prior preclinical and clinical work with REOLYSIN . This includes a National Cancer Institute screen of seven colorectal cancer cell lines (four with ras mutations), all of which were susceptible to REOLYSIN ; preclinical research into the efficacy of REOLYSIN in combination with various chemotherapeutic agents in colorectal cancer cell lines; observation of CEA responses and stable disease in colorectal patients in a Phase I study of REOLYSIN as a monotherapy; and evidence of viral replication of reovirus in liver metastases in patients with metastatic colorectal cancer in a translational study with REOLYSIN as a monotherapy that is currently ongoing.

Manufacturing and Process Development

During the second quarter of 2010, we completed the bulk production of a second 100-litre cGMP production run for the year. As well, we finished the fill and packaging of the 100-litre cGMP production run that was completed earlier in 2010. Our process development activity for the second quarter of 2010 continued to focus on process validation and formulation studies.

Intellectual Property

At the end of the second quarter of 2010, we had been issued over 200 patents including 36 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.

We estimated at the beginning of 2010 that our cash requirements to fund our operations for the year would be approximately $24,000,000. Our cash usage for the six month period ending June 30, 2010 was $9,299,963 from operating activities and $43,498 for the purchases of capital assets. This is below our expectations mainly due to the timing of patient enrollment in our Phase III pivotal trial. The Phase III pivotal trial has started enrolling and we estimate our cash requirements for the year will be approximately $21 million. Our net loss for the first half of 2010 was $8,493,185.

We exited the second quarter of 2010 with cash and short term investments totaling $24,885,898 (see "Liquidity and Capital Resources").

Expected REOLYSIN Development for the Remainder of 2010

Our planned development activity for REOLYSIN in 2010 is made up of clinical, manufacturing, intellectual property and collaboration programs. Our 2010 clinical program includes continuing patient enrollment in our Phase 3 head and neck clinical trial. As well, we continue to expect to complete our non-small cell lung cancer trial and support those clinical trials that are sponsored by CTRC, Leeds and the NCI.

Our 2010 manufacturing program continues to include two 100-litre production runs along with the related fill, labeling, packaging and shipping of REOLYSIN to the various clinical sites as required, and performing smaller process development studies examining formulation, validation and additional scale up.

Phase III Head and Neck Pivotal Trial

On July 19, 2010, we announced that we had received a No Objection Letter from Health Canada to conduct our Phase III pivotal trial examining REOLYSIN in combination with paclitaxel and carboplatin in patients with platinum-refractory head and neck cancers. We now have authorization to commence this trial in four jurisdictions including the U.S., the U.K. and Belgium.

SECOND QUARTER RESULTS OF OPERATIONS

(for the three months ended June 30, 2010 and 2009)

Net loss for the three month period ending June 30, 2010 was $4,351,974 compared to $4,334,757 for the three month period ending June 30, 2009.

Research and Development Expenses ("R&D")

Clinical Trial Program

During the second quarter of 2010, our clinical trial expenses decreased to $585,632 compared to $1,103,388 for the second quarter of 2009. In the second quarter of 2010, we incurred direct patient expenses related to the four trials that we are sponsoring compared to 10 clinical trials in the second quarter of 2009. We also continued to incur start up costs in the second quarter of 2010 related to our Phase III head and neck cancer clinical trial that were not incurred during the second quarter of 2009.

Manufacturing & Related Process Development ("M&P")

Our M&P expenses for the second quarter of 2010 increased to $1,775,863 compared to $1,378,221 for the second quarter of 2009. During the second quarter of 2010, our production activity included the completion of the bulk harvest of our second 100-litre cGMP production run for the year along with vial and labeling costs associated with the 100-litre production run completed in the first quarter of 2010. During the second quarter of 2009, we completed one 100-litre production run under cGMP conditions and commenced the validation of a larger scale vial, labeling and packaging process.

Our process development expenses for the second quarter of 2010 were $350,385 compared to $121,182 for the second quarter of 2009. During the second quarter of 2010, our process development activity continued to focus on optimization and validation studies. In the second quarter of 2009, we completed our lyophilization formulation development program and continued with process validation studies.

Intellectual Property Expenses

Our intellectual property expenses for the second quarter of 2010 were $107,332 compared to $205,096 for the second quarter of 2009. The change in intellectual property expenditures reflects the timing of filing costs associated with our expanded patent base. At the end of the second quarter of 2010, we had been issued over 200 patents including 36 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.

Research Collaborations

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. During the second quarters of 2010 and 2009, we continued to selectively enter into collaborations and incurred costs with collaborative studies that were already ongoing.

Other Research and Development Expenses

During the second quarter of 2010, our other research and development expenses increased to $626,034 compared to $542,076 for the second quarter of 2009. During the second quarter of 2010, we increased our staff levels compared to the second quarter of 2009, in order to support our Phase III pivotal clinical trial.

During the second quarter of 2010, our public company related expenses were $820,585 compared to $613,618 for the second quarter of 2009. In the second quarter of 2010, we incurred professional fees associated with the renewal of our base shelf prospectus that were not incurred in 2009. As well, the costs associated with our Annual General Meeting increased as a result of holding our AGM in Toronto compared to Calgary in 2009.

Our office expense activity during the second quarter of 2010 remained consistent compared to the second quarter of 2009.

Foreign Exchange (Gain) Loss