For the quarter ended March 31, 2010

First Quarter Report

Oncolytics Biotech Inc.

2010 FIRST QUARTER REPORT

For the quarter ended March 31, 2010

The last three months have been eventful ones for Oncolytics as we expanded our evolving clinical program and reported new clinical and preclinical data.

Expanding Clinical Program

Most significantly during the quarter, we received approval from the U.K. Medicines and Healthcare products Regulatory Agency (MHRA) to conduct our Phase III head and neck cancer trial in the U.K. This will be part of the same trial that we previously reached an agreement on with the U.S. Food and Drug Administration (FDA) under the Special Protocol Assessment (SPA) process. This internationalizes our Phase III study and, if the trial is successful, will provide us with the basis for a regulatory submission in the important European market.

During the quarter we also announced that The Cancer Therapy & Research Center at the University of Texas Health Science Center (CTRC) had started patient enrolment in a U.S. Phase II 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). Lung cancer is a leading cause of cancer death in both men and women and squamous cell carcinomas account for 25-30% of lung cancer cases. This study is important as it expands our lung cancer program, which includes a Phase 2 study in non-small cell lung cancer (NSCLC) patients with Kras or EGFR-activated tumors, and because we are observing clinical benefit in a majority of the SCC head and neck cancer patients we have treated to date.

Subsequent to quarter end, we announced completion of Phase I patient enrollment in a Phase I/II clinical trial to investigate the use of REOLYSIN for patients with recurrent malignant gliomas (REO 007). The Phase I portion of the trial treated 15 patients in five cohorts with doses escalating from 1x108 TCID50 to 1x1010 TCID50. The treatment was shown to be safe and well tolerated and no maximum tolerated dose (MTD) was reached. We intend to publish additional data from this study as it becomes available.

Growing Body of Clinical and Preclinical Data

Both during the quarter and subsequent to quarter end, the Company announced an array of early clinical and preclinical data. The information gathered improved our understanding of REOLYSIN's mechanism of action, provided evidence of synergies with currently approved therapeutics in an expanded range of potential indications and will help support future decisions with respect to advancing additional indications into clinical testing. Since January 1, 2010 the Company has announced:

Our focus in the second quarter will be on initiating patient enrollment in our Phase III head and neck study. We intend to advance our other, increasingly later stage, clinical initiatives forward with the goal of reporting data from a number of other Phase II studies as it becomes available in 2010 and 2011.

We would like to thank all stakeholders for their continued support and patience as we advance into late stage clinical testing and we look forward to updating you on our progress in subsequent 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 consolidated interim financial statements of Oncolytics Biotech Inc. as at and for the three months ended March 31, 2010 and 2009, and should also be read in conjunction with the audited consolidated 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 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 research and development efforts 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 research and development efforts. We do not expect to generate significant revenues until, if and when, our cancer product becomes commercially viable.

General Risk Factors

Prospects for biotechnology companies in the research and development stage should generally be regarded as speculative. It is not possible to predict, based upon studies in animals, or early studies in humans, whether a new therapeutic will ultimately prove to be safe and effective in humans, or whether necessary and sufficient data can be developed through the clinical trial process to support a successful product application and approval.

If a product is approved for sale, product manufacturing at a commercial scale and significant sales to end users at a commercially reasonable price may not be successful. There can be no assurance that we will generate adequate funds to continue development, or will ever achieve significant revenues or profitable operations. Many factors (e.g. competition, patent protection, appropriate regulatory approvals) can influence the revenue and product profitability potential.

In developing a pharmaceutical product, we rely upon our employees, contractors, consultants and collaborators and other third party relationships, including the ability to obtain appropriate product liability insurance. There can be no assurance that these reliances and relationships will continue as required.

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

REOLYSIN Development Update for the First 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 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 2010 with eight 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 four 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 first quarter of 2010, we received approval from the U.K. Medicines and Healthcare products Regulatory Agency ("MHRA") to conduct our Phase III head and neck trial in the U.K. thereby expanding our pivotal trial into other jurisdictions. As well, our clinical trial research collaboration with the CTRC expanded to include a Phase II clinical trial using intravenous administration of REOLYSIN in combination with carboplatin and paclitaxel in patients with squamous cell carcinoma of the lungs.

We exited the first quarter of 2010 with nine clinical trials of which four are sponsored by us and the remainder are sponsored by the NCI, CTRC, and Leeds.

Clinical Trial - Phase III Head and Neck Pivotal Trial

During the first quarter of 2010, we continued to prepare for the commencement of enrollment in our Phase III clinical trial. We expanded the number of jurisdictions to include the U.K. as we received a letter of approval from the MHRA allowing us to conduct our Phase III trial in the U.K. 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 III 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 Trials - Clinical Collaboration

On March 30, 2010, we announced that the CTRC commenced patient enrolment in a U.S. Phase II 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"). The Principal Investigator is Dr. Alain C. Mita of the CTRC.

This trial is a single arm, open-label, Phase II study of REOLYSIN given intravenously with paclitaxel and carboplatin every three weeks. Up to 55 patients are expected to be treated in this trial. Eligible patients include those with metastatic stage IIIB, or stage IV, or recurrent squamous cell carcinoma of the lung who are chemotherapy na ve for their metastatic or recurrent cancer.

The primary objective is to assess the antitumor effect of the treatment regimen in the study population in terms of objective response rates. The secondary objectives are to assess progression-free survival and overall survival for the treatment regimen in the study population; to determine the proportion of patients receiving the above treatment who are alive and free of disease progression at six months; and to assess the safety and tolerability of the treatment regimen in the study population.

This trial is part of our broad clinical research collaboration with the CTRC that will involve up to five, open-label, Phase 2 studies exploring the use of REOLYSIN in combination with chemotherapy for various cancer indications.

Manufacturing and Process Development

During the first quarter of 2010, we completed the bulk production of our first 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 at the end of 2009. Our process development activity for the first quarter of 2010 continued to focus on process validation and formulation studies.

Intellectual Property

At the end of the first quarter of 2010, we had been issued over 200 patents including 33 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 would be approximately $24,000,000. Our cash usage for the first quarter of 2010 was $4,938,083 from operating activities and $3,647 for the purchases of capital assets. This is in line with our expectations. Our net loss for the first quarter of 2010 was $4,141,211.

We exited the first quarter of 2010 with cash and short-term investments totaling $28,823,251 (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 continues to include the commencement of patient enrollment in our Phase III head and neck clinical trial along with the completion of Stage 1 of this trial (approximately 80 patients). 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.

RESULTS OF OPERATIONS

Net loss for the three month period ending March 31, 2010 was $4,141,211 compared to $3,957,646 for the three month period ending March 31, 2009.

Research and Development Expenses ("R&D")

Clinical Trial Program

During the first quarter of 2010, our clinical trial expenses decreased to $876,935 compared to $1,413,994 for the first quarter of 2009. In the first quarter of 2010, we incurred direct patient expenses related to the four trials that we are sponsoring compared to 10 clinical trials in the first quarter of 2009. We also incurred start up costs in the first quarter of 2010 related to our Phase III head and neck cancer clinical trial that were not incurred during the first quarter of 2009.

We still expect our clinical trial expenses to increase in 2010 compared to 2009. We expect to commence enrollment in our Phase III head and neck cancer clinical trial along with completion of stage one of this trial (approximately 80 patients) in 2010. As well, we expect to complete our non-small cell lung cancer trial and support those clinical trials that are sponsored by CTRC, Leeds and the NCI.

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

In the first quarter of 2010, our M&P expenses were $1,235,627 compared to $311,015 for the first quarter of 2009. During the first quarter of 2010, our production activity included the completion of the bulk harvest of one 100-litre cGMP production run along with vial and labeling costs associated with the 100-litre production run completed at the end of 2009. During the first quarter of 2009, we incurred lot release testing along with vial, labeling and packaging costs as we shipped our product to the various clinical trial sites for use in our clinical trial program.

Our process development expenses for the first quarter of 2010 were $104,762 compared to $132,023 for the first quarter of 2009. In the first quarter of 2010, our process development activity continued to focus on optimization and validation studies compared to 100-litre scale-up studies in the first quarter of 2009.

We continue to expect that our M&P expenses for 2010 will increase compared to 2009. We expect to complete a second 100-litre cGMP production run including related fill and finish activities in 2010. We also expect to continue to perform a number of small scale process development studies focusing on formulation, process validation, stability and scale up.

Intellectual Property Expenses

Our intellectual property expenses for the first quarter of 2010 were $216,836 compared to $344,231 for the first quarter of 2009. The change in intellectual property expenditures reflects the timing of filing costs associated with our patent base. At the end of the first quarter of 2010, we had been issued over 200 patents including 33 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 first quarter of 2010, we did not incur any new research collaboration costs as we continue to selectively consider the need for additional collaborations. During the first quarter of 2009, we incurred costs associated with collaboration studies that were ongoing at the end of 2008.

We still expect that our pre-clinical trial expenses and research collaborations in 2010 will remain consistent with 2009.

Other Research and Development Expenses

During the first quarter of 2010, the activity associated with our other research and development expenses remained consistent compared to the first quarter of 2009.

We still expect that our Other R&D expenses will remain consistent with 2009.

During the first quarter of 2010, our public company related expenses were $642,181 compared to $644,327 for the first quarter of 2009. As well, our office expenses during the first quarter of 2010 were $307,243 compared to $342,437 for the first quarter of 2009. These activities have remained consistent during the first quarter of 2010 compared to the first quarter of 2009.

As at March 31, 2010, we are committed to payments totaling $768,000 during the remainder of 2010 for activities related to clinical trial activity, manufacturing and collaborations. All of these committed payments are considered to be part of our normal course of business.

SUMMARY OF QUARTERLY RESULTS

The following unaudited quarterly information is presented in thousands of dollars except for per share amounts:

LIQUIDITY AND CAPITAL RESOURCES

The decrease in our cash and cash equivalent and short term investment positions reflects the cash usage from our operating activities of $4,938,083 which includes a reduction in net change in non-cash working capital of $1,176,681 for the period ending March 31, 2010.

We desire to maintain adequate cash and short-term investment reserves to support our planned activities which include our clinical trial program, product manufacturing, administrative costs, and our intellectual property expansion and protection. To date, we have funded our operations through the issue of additional capital via public and private offerings and acquisition of a private company. We continue to estimate the cost of our operations in 2010 will be $24 million.

We manage our research and development plan with the objective of ensuring optimal use of our existing resources. Additional activities continue to be subject to adequate resources and we believe we will have sufficient cash resources to fund our presently planned operations into 2011. Factors that will affect our anticipated cash usage in 2010 and for which additional funding might be required include, but are not limited to, any expansion in our clinical trial program, the timing of patient enrollment in our approved clinical trials, the actual costs incurred to support each clinical trial, the number of treatments each patient will receive, the timing of R&D activity with our clinical trial research collaborations, the number and timing of manufacturing runs required to supply our clinical trial program and the cost of each run, and the level of collaborative activity undertaken.

We have no assurances that we will be able to raise funds through the sale of our common shares, consequently, we continue to evaluate all types of financing arrangements. We also want to be in a position to evaluate potential financings and be able to accept appropriate financings when available. As a result, we filed a base shelf prospectus on June 16, 2008 which qualified for distribution up to $150,000,000 of common shares, subscription receipts, warrants, debt securities and/or units. Establishing our base shelf provides us with additional flexibility when seeking capital as, under certain circumstances, it shortens the time period to close a financing and is expected to increase the number of potential investors that may be prepared to invest in our company. We were able to take advantage of our base shelf in 2009 with our two public offerings along with the exercise of the related warrants raising approximately $35 million. Our existing base shelf expires in July 2010 and we plan to renew it prior to its scheduled expiration.

Investing Activities

Under our Investment Policy, we are permitted to invest in short-term instruments with a rating no less than R-1 (DBRS) with terms less than two years. We have $1,679,937 (December 31, 2009 - $1,679,937) invested under this policy and we are currently earning interest at an effective rate of 0.17% (2009 - 0.50%)

OTHER MD&A REQUIREMENTS

We have 61,549,969 common shares outstanding at May 11, 2010. If all of our warrants (1,955,000) and options (3,929,693) were exercised we would have 67,434,662 common shares outstanding.

Additional information relating to Oncolytics Biotech Inc. is available on SEDAR at www.sedar.com.

Controls and Procedures

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2010 that materially affected or are reasonably likely to materially affect, internal controls over financial reporting.

Interim Consolidated Financial Statements

Oncolytics Biotech Inc.

Oncolytics Biotech Inc.

INTERIM CONSOLIDATED BALANCE SHEETS