MANAGEMENT DISCUSSION & ANALYSIS EX. 99.1 - 2011 MD&A 2011 MANAGEMENT DISCUSSION & ANALYSIS 2011 ONCOLYTICS BIOTECH INC. MANAGEMENT DISCUSSION & ANALYSIS 2011 TABLE OF CONTENTS Basis of Presentation and Transition to IFR

MANAGEMENT DISCUSSION & ANALYSIS

ONCOLYTICS BIOTECH INC.

MANAGEMENT DISCUSSION & ANALYSIS

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

BASIS OF PRESENTATION AND TRANSITION TO IFRS

On January 1, 2011, we adopted International Financial Reporting Standards ("IFRS") for Canadian publicly accountable enterprises. Prior to the adoption of IFRS, we followed Canadian Generally Accepted Accounting Principles ("CGAAP"). While IFRS has many similarities to CGAAP, some of our accounting policies have changed as a result of our transition to IFRS. The most significant accounting policy changes that have had an impact on the results of our operations are discussed in more detail in the Accounting Changes - IFRS section of this Management Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

This MD&A should be read in conjunction with our 2011 audited consolidated financial statements and notes thereto, which have been prepared in accordance with IFRS.

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 2012 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 REOLYSIN, 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.

REOLYSIN Development Update For 2011

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.

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 believe that we have to actively manage the development of our clinical

trial program, our pre-clinical and collaborative programs, our manufacturing process and REOLYSIN supply, and our intellectual property.

Clinical Trial Program

Our clinical trial program is made up of randomized and non-randomized clinical trials that are sponsored by Oncolytics and by third parties. We began 2011 with a clinical program consisting of 12 clinical trials. Two of these clinical trials were randomized trials and include our global randomized Phase III head and neck clinical trial. The remaining trials consisted of Phase I and Phase II clinical trials in the U.S. and the U.K. Five of the clinical trials in our clinical program are funded by Oncolytics and the other seven are sponsored by third parties. In 2011, we added two additional clinical trials and enrollment was completed in two trials. We exited 2011 with 12 clinical trials which include three randomized trails. We fund four of the trials in our clinical program and third parties sponsor the other eight.

Clinical Trial - Randomized Phase III Head and Neck Pivotal Trial

During 2011, our global randomized Phase III head and neck pivotal trial expanded into additional jurisdictions and continued to enroll patients. Our focus in 2011 was to initiate a sufficient number of clinical sites in an effort to complete patient enrollment as quickly as possible. At the end of 2011, we were approved to enroll patients in 12 countries including the U.S., under a Special Protocol Assessment, Canada, parts of the European Union and Russia.

Clinical Trial - Third Party Clinical Trials

During 2011 and 2010 we have been able to expand the number of third party sponsored clinical trials ("Third Party Trials"). Third Party Trials have allowed us to expand our clinical program to include additional cancer indications (pancreatic, ovarian, squamous cell carcinoma, lung cancer and multiple myeloma) while allowing us to remain focused on our global randomized Phase III head and neck trial, our non-small cell lung cancer trial and complete our other clinical trials. Our Third Party Trials require that we supply enough REOLYSIN for the enrollment requirements of each trial, sufficient intellectual capital to support the principal investigators and in some cases cost sharing of patient enrollment activities. The institutions involved provide the rest of the required activities to operate the clinical trial. These activities include patient screening and enrollment, treatment, monitoring and overall clinical trial management and reporting. The result is a larger clinical program investigating more cancer indications at a significantly reduced financial cost to Oncolytics.

We began 2011 with seven Third Party Trials. Our Third Party 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 2011, our Third Party Trials expanded with the addition of two clinical trials sponsored by the NCI. The first clinical trial added in 2011 was a randomized U.S. Phase II pancreatic cancer study which also commenced enrollment. The second clinical trial added was a U.S. Phase I clinical study of REOLYSIN alone in patients with relapsed multiple myeloma. As well in 2011, patient enrollment was completed in our translational clinical trial sponsored by Leeds. We exited 2011 with eight Third Party Trials.

Clinical Trial - Program Expansion

Randomized Phase II Pancreatic Cancer Trial

In 2011, the NCI agreed to sponsor a 2-Arm randomized Phase II study of carboplatin, paclitaxel plus REOLYSIN versus carboplatin and paclitaxel alone in the first line treatment of patients with recurrent or metastatic pancreatic cancer. The NCI is sponsoring the trial under our Clinical Trials Agreement with them. The Principal Investigator is Dr. Tanios Bekaii-Saab of The Ohio State University Comprehensive Cancer Center - Arthur G. James Cancer Hospital and Richard J. Solove Research Institute.

The study is an open-label, multi-institution, 2-arm Phase II randomized study of patients with metastatic pancreatic cancer. Patients will be randomized to receive either carboplatin, paclitaxel plus REOLYSIN (Arm A) or carboplatin and paclitaxel alone (Arm B). Patients in both arms will receive treatment every three weeks (21-day cycles). Patients in both arms will be receiving standard intravenous doses of paclitaxel and carboplatin on day one only. In Arm A, patients will also receive intravenous REOLYSIN at a dose of 3x1010 TCID50 on days one through five. Tumor response assessment will be done by CT scan and conducted every eight weeks. Patients that progress on carboplatin and paclitaxel (Arm B) will have REOLYSIN added. If patients experience significant toxicity related to carboplatin and/or paclitaxel they may continue with single agent REOLYSIN.

The primary objective of the trial is to assess improvement in progression-free survival with REOLYSIN, carboplatin and paclitaxel relative to carboplatin and paclitaxel alone in patients with metastatic pancreatic cancer. The primary endpoint is progression free survival in both arms. Secondary endpoints include overall response rate and overall survival. The study is expected to enroll approximately 70 patients.

NCI Sponsored Phase I Multiple Myeloma Clinical Trial

In 2011, the NCI agreed to sponsor a Phase I study of REOLYSIN alone in patients with relapsed multiple myeloma. The Principal Investigator is Dr. Craig Hofmeister of The Ohio State University Comprehensive Cancer Center - Arthur G. James Cancer Hospital and Richard J. Solove Research Institute.

The study will initially be a proof of concept, open-label Phase I study of REOLYSIN in patients with relapsed multiple myeloma. Approximately 12 patients will receive REOLYSIN, in a dose escalation up to 3 x 1010 TCID50 per day administered intravenously on days one through five every 28 days.

The primary endpoint for the dose escalation portion of this study will be adverse events using CTCAE criteria. Correlative studies will focus on the efficiency with which reovirus replicates in patient myeloma cells. Investigators will use standard cohorts-of-three phase I dose escalation design with three to six patients being treated at each dose level. Secondary endpoints will include clinical benefit, duration of response, and time to progression.

Clinical Trial - Results

CTRC Sponsored Phase II Pancreatic Cancer Trial (non-randomized)

In 2011, we reported preliminary results and that we had successfully reached the stage two primary endpoint from our non-randomized U.S. Phase II clinical trial using intravenous administration of REOLYSIN in combination with gemcitabine (Gemzar ) in patients with advanced pancreatic cancer.

We reported that eight patients of 13 evaluable patients in the study had stable disease ("SD") for 12 weeks or longer, for a clinical benefit rate (complete response ("CR") + partial response ("PR") + SD) of 62%. An additional patient had an unconfirmed PR of less than six weeks. These results allowed us to conclude that the drug combination is active.

Earlier in 2011, a subset of these results was presented in a poster at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics in San Francisco, CA. The poster, entitled "A Phase II Study of REOLYSIN in Combination with Gemcitabine in Patients with Advanced Pancreatic Adenocarcinoma", authored by Mita et al, indicated that as of the date of submission of the poster that 12 patients were evaluable for response. All patients except one reported symptomatic improvement. Seven patients had SD for 12 weeks or longer, for a clinical benefit rate of 58%.This included two patients who had SD for 36 weeks or longer. An additional patient had an unconfirmed PR of less than six weeks. The treatment was well tolerated with manageable adverse events.

The trial is a single arm, open-label, Phase II study of REOLYSIN given intravenously with gemcitabine every three weeks. The study's primary objective is to determine the clinical benefit rate (complete response (CR) + partial response (PR) + stable disease (SD)) of REOLYSIN in combination with gemcitabine in patients with advanced or metastatic pancreatic adenocarcinoma with measurable disease who have not received any prior chemotherapy or biotherapy. The secondary objectives are to determine progression-free survival, and the safety and tolerability of REOLYSIN when administered in combination with gemcitabine.

The study is using a one sample, two-stage design. In the first stage, 17 patients were to be enrolled, and best response noted. If less than three responses (defined as CR or PR or SD for 12 weeks or more) were observed, the study would have concluded that the combination was inactive and been terminated. If three or more responses were observed among the 17 patients, the study would enroll an additional 16 patients for a total of 33 evaluable patients. This initial endpoint was met after six evaluable patients were enrolled and the study was expanded to enroll a total of 33 patients. If at least eight responses were observed out of these 33 patients, the study would reach its primary endpoint and conclude that the drug combination is active. This endpoint has now been achieved.

Leeds Sponsored Translational Colorectal Cancer Clinical Trial

During 2011, we completed enrollment and released interim data from our U.K. translational clinical trial investigating intravenous administration of REOLYSIN in patients with metastatic colorectal cancer prior to surgical resection of liver metastases. The principal investigator of the study was Professor Alan Melcher of Leeds Institute of Molecular Medicine, University of Leeds, UK.

The trial was an open-label, non-randomized, single centre study of REOLYSIN given intravenously to patients for five consecutive days in advance of their scheduled operations to remove colorectal cancer deposits metastatic to the liver. Patients were treated with intravenous REOLYSIN at 1x1010 TCID50, one to three weeks prior to the planned surgery. After surgery, the tumour and surrounding liver tissue were assessed for viral status and anti-tumour effects.

On initial histological analysis of the 10 treated patients to date, there was evidence of selective delivery of virus to tumour versus normal liver and viral replication in the majority (seven) of patients. In two patients, only necrotic tumour was found; in one of these cases virus was detected in immune cells in the tumour. In six of 10 patients there was no evidence of virus in the normal liver surrounding the tumour, with virus found only rarely in liver cells in the other four patients.

U.S. Phase II Non-Small Cell Lung Cancer ("NSCLC") Clinical Trial

In 2011, we announced that a presentation covering interim preliminary results from our Phase II clinical trial using intravenous administration of REOLYSIN in combination with paclitaxel and carboplatin in patients with NSCLC with Kras or EGFR-activated tumours was made at the International Association for the Study of Lung Cancer World Conference on Lung Cancer.

The presentation, entitled "Phase II study of reovirus with paclitaxel (P) and carboplatin (C) in patients with metastatic non-small cell lung cancer (NSCLC) who have Kras or EGFR-activated tumors", was given by Dr. Miguel Villalona-Calero, principal investigator for the study, and indicated that 22 patients had received REOLYSIN (3x1010 TCID50) intravenously daily on days one to five, in combination with carboplatin and paclitaxel.

As of the date of the presentation, the study had enrolled patients with Adenocarcinoma (15), Squamous Cell Carcinoma (three), Bronchioloalveolar Carcinoma (one), and not otherwise specified non-small cell lung cancer (three). Molecular tumor demographics included: nine Kras mutant, three EGFR mutant, 16 EGFR amplified. Response evaluation in 21 patients showed six PR (28.6%), 13 SD (61.9%), and two PD (9.5%). This translated into a clinical benefit rate of 90.5% and a response rate of 28.6%. The investigators noted that the clinical benefit noted so far is encouraging and that a follow up randomized clinical trial appears warranted.

U.S. Phase II REOLYSIN in Combination with Paclitaxel and Carboplatin in Head and Neck Cancers

In 2011, positive results from our Phase II clinical trial using intravenous administration of REOLYSIN in combination with paclitaxel and carboplatin in patients with advanced head and neck cancers was presented at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics. The Principal Investigator of this study was Dr. Monica Mita of the Cancer Therapy & Research Center at The University of Texas Health Science Center at San Antonio (CTRC).

This U.S. trial was a single arm open-label, Phase II study of REOLYSIN given intravenously with paclitaxel (175 mg/m2) and carboplatin (AUC 5) every three weeks in patients with platinum-refractory recurrent and/or metastatic squamous cell cancers of the oral cavity, larynx, or pharynx. The primary end point was to determine the objective response rate ( CR + PR) of the treatment regimen in the study population. Secondary objectives included the determination of disease control rate (CR + PR + SD) and the safety and tolerability of the treatment regimen.

Of the 14 enrolled patients, all had received prior chemotherapy, radiotherapy, or combinations thereof for their metastatic or recurrent disease. Ten of the 14 patients received prior chemotherapy treatment with taxanes. Of the 13 patients evaluable for response, four had PRs, for an objective response rate of 31%. Six patients had SD or better for 12 weeks or longer for a disease control rate (SD or better) of 46%. Two of the four patients with PRs and both patients with SD had received prior treatment with taxanes.

Manufacturing and Process Development

In 2011, we entered into a commercial supply agreement with SAFC, a Division of Sigma-Aldrich Corporation, for the commercial manufacturing of REOLYSIN. Under the terms of the agreement, SAFC will perform process validation of the product, will continue to supply clinical requirements and will supply commercial material upon approval of the product. Throughout 2011, we completed two 100 litre cGMP production runs along with the associated fill and packaging activities. In the fourth quarter of 2011, we commenced validation activities designed to demonstrate that the manufacturing process for the commercial production of REOLYSIN is robust and reproducible as part of a process validation master plan. Process validation is required to ensure that the resulting product meets required specifications and quality standards and will form part of the Company's submission to regulators, including the US Food and Drug Administration, for product approval.

Intellectual Property

At the end of 2011, we had been issued over 319 patents including 45 U.S. and 13 Canadian patents as well as issuances in other jurisdictions. We have an extensive patent portfolio covering the oncolytic reovirus that we use in our clinical trial program including a composition of matter patent that expires in 2028. Our patent portfolio also includes methods for treating proliferative disorders using modified adenovirus, HSV, parapoxvirus and vaccinia virus.

Collaborative Program

During 2011, the following article was published:

In December 2010, and in conjunction with the terms of our warrant indenture, we accelerated the expiry date of our U.S.$3.50 warrants issued in November 2009 to January 24, 2011. By January 24, 2011, we had received U.S.$6.4 million from the exercise of 1,833,600 of our U.S.$3.50 warrants. Also in 2011, we received proceeds of $8.1 million from the exercise of 1,322,750 warrants with an exercise price of $6.15. These warrants were issued in connection with the financing that closed on November 8, 2010.

Throughout 2011, we received cash proceeds of $0.3 million with respect to the exercise of 136,683 stock options.

We estimated at the beginning of 2011 that our cash requirements to fund our operations would be approximately $29 million. We amended our estimate during the year to $24 million mainly due to the timing of patient enrollment in our global randomized Phase III head and neck clinical trial. Our cash usage for the year was $22,541,183 for operating activities and $257,790 for the acquisition of property and equipment. Our net loss for the year was $29,044,701.

We exited 2011 with cash and short-term investments totaling $34,855,538 (see "Liquidity and Capital Resources").

REOLYSIN Development For 2012

Our planned development activity for REOLYSIN in 2012 is made up of clinical, manufacturing, and intellectual property programs. Our 2012 clinical program includes the anticipated completion of stage 1 (approximately 80 patients) and stage 2 of our global randomized Phase III head and neck clinical trial. As well, we expect enrollment to progress in our other clinical trials throughout 2012 completing enrollment in our U.S. phase II non-small cell lung cancer and our U.S. phase I colorectal cancer trials. Also in 2012, we expect the number of our Third Party Trials to increase to include additional cancer indications and we plan to continue to support these Third Party Trials.

Our 2012 manufacturing program includes several 100-litre cGMP production runs along with the related fill, labeling, packaging and shipping of REOLYSIN to our various clinical sites. We also plan on progressing through our process validation master plan and related conformity testing in 2012. Finally, our intellectual property program includes filings for additional patents along with monitoring activities required to protect our patent portfolio.

We estimate that the cash requirements to fund our operations for 2012 will be approximately $40,000,000 (see "Liquidity and Capital Resources").

Our Accounting Policies

In preparing our financial statements we use International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS") (see "Accounting Changes - IFRS"). IFRS requires that we make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available in selecting our accounting policies. Our selection of accounting policies, along with our estimates and assumptions affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of expenses during the periods presented.

Accounting Policy Changes - Adoption of IFRS

On January 1, 2011, we adopted IFRS for Canadian publicly accountable enterprises, as required by the Accounting Standards Board of Canada. Prior to the adoption of IFRS, we followed CGAAP. The most significant change to our accounting policies relates to the treatment of our warrants with an exercise price denominated in U.S. dollars. The impact of this change has been fully disclosed in Note 3 of our audited consolidated financial statements. There was no change in how we account for our research and development or operating activities and there was no impact on our cash, cash equivalents or short-term investment balances.

Although we adopted IFRS on January 1, 2011, we were required to restate our comparative 2010 annual consolidated financial position and results of operations, effective from January, 1, 2010. Note 4 of our audited consolidated financial statements outlines our IFRS accounting policies and Note 3 provides a complete list of our IFRS 1 elections; detailed reconciliations between CGAAP and IFRS of shareholders' equity as at January 1 and December 31, 2010, respectively, and of consolidated net loss and comprehensive loss for the year ending December 31, 2010; and information regarding the impacts of IFRS transition on our cash flows. A summary of the changes are outlined below in the following tables and respective notes:

Consolidated Statement of Cash Flows

In transitioning to IFRS, there was no impact on our net change in cash or cash flow statement presentation for the year ending December 31, 2010.

IFRS Transitional Arrangements

When preparing our consolidated statement of financial position under IFRS at January 1, 2010, our date of transition, the following optional exemption from full retrospective application of IFRS accounting policies has been adopted:

Cumulative translation differences - cumulative translation differences resulting from the translation of our net investment in our U.S. subsidiary and the financial statements of our U.S. subsidiary have been set to zero at January 1, 2010.

IFRS requires warrants with an exercise price denominated in a currency other than the entity's functional currency to be treated as a liability measured at fair value. Changes in fair value are to be recorded in the consolidated statement of loss and comprehensive loss.

Classification of expenses within the statement of loss and comprehensive loss

Under IFRS, we have chosen to present our expenses based on the function of each expense rather than the nature of each expense. As a result, share based compensation, depreciation of capital assets, and foreign currency gains and losses are no longer separately presented on the statement of loss and comprehensive loss. There is no impact on our net loss or comprehensive loss as a result of these classifications.

Foreign currency translation

Under IFRS, we record the impact of fluctuations in foreign currency exchange rates relating to our net investment in our U.S. subsidiary and any foreign currency effects on the translation of our U.S. subsidiary's financial statements as a separate component of equity and other comprehensive income. Under CGAAP we treated our U.S. subsidiary as an integrated subsidiary with foreign currency translation differences recorded as part of our statement of loss. The result of the transition to IFRS is a reclassification of the related foreign currency gains and losses from net loss to other comprehensive income. There is no impact on our net comprehensive loss as a result of these re-classifications.

Critical Accounting Policies

In preparing our financial statements, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets at the date of the financial statements and the reported amounts of expenses during the periods presented. Significant estimates are used for, but not limited to, the treatment of our research and development expenditures, the assessment of realizable value of long-lived assets, the amortization period of intellectual property and the calculation of stock based compensation (see Note 5 " Significant Judgments, Estimates and Assumptions" of our audited consolidated financial statements.

The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Research and Development

Research costs are expensed as incurred. Development costs that meet specific criteria related to technical, market and financial feasibility will be capitalized. To date, all of our activities have been expensed.

We account for our research and development activity in conjunction with the IAS 38 "Intangible Assets" of IFRS. IAS 38 makes a distinction between the research phase of a project and the development phase of an internal project and requires that all costs incurred during the research phase are to be expensed. However, an intangible asset arising from the development phase of an internal project shall be recognized if, and only if, we can demonstrate all of the following:

We believe that we do not meet all of the above criteria and for this reason, our research and development costs are expensed and not capitalized.

We will monitor our progress against these criteria and will capitalize our development costs once we can conclude we meet the above criteria.

Future Accounting Changes

Accounting Standards and Interpretations Issued but Not Yet Effective

Financial Instruments

In November 2009, the International Accounting Standard Board ("IASB") issued IFRS 9 Financial Instruments which replaced the classification and measurement requirements in IAS 39 Financial Instruments: Recognition and Measurement for financial assets. In October 2010, the IASB issued additions to IFRS 9 regarding financial liabilities. The new standard is effective for annual periods beginning on or after January 1, 2015 with earlier adoption permitted. We do not anticipate that there will be a material impact on our financial position or results of operations.

Fair Value Measurements

In June 2011, the IASB issued IFRS 13 Fair Value Measurements, which establishes a single source of guidance for all fair value measurements required by other IFRS; clarifies the definition of fair value; and enhances disclosures about fair value measurements. IFRS 13 applies when other IFRS require or permit fair value measurements or disclosures. IFRS 13 specifies how we should measure fair value and disclose fair value information. It does not specify when an entity should measure an asset, a liability or its own equity instrument at fair value. IFRS 13 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We are currently assessing the impact of adopting IFRS 13 on our consolidated financial statements.

Presentation of Financial Statements