technology changing life annual report 2010 Table of Contents Oncolytics Biotech Inc. is focused on the development of oncolytic viruses as a novel and effective approach to cancer treatment. Oncolytics clinical program

technology changing life

Oncolytics Biotech Inc. is focused on the development of oncolytic viruses as a novel and effective approach to cancer treatment.

Oncolytics clinical program includes a variety of human trials including a Phase III trial in head and neck cancers using REOLYSIN , its proprietary formulation of the human reovirus.

Oncolytics trades on the Toronto Stock Exchange (symbol ONC) and on the NASDAQ (symbol ONCY).

The Annual Meeting of the Shareholders will be held at the

Hilton Toronto Hotel, 145 Richmond Street West, Toronto, Ontario

4:30 pm Eastern Time on Wednesday, May 11, 2011.

Oncolytics 2010 Message to Shareholders

We continue to focus and expand on the key elements necessary to move REOLYSIN forward as a potential treatment for a broad range of

cancers. 2010 saw us expand our clinical programs, highlighted by three randomized clinical studies in head and neck, pancreatic, and ovarian cancers. We were also able to substantially strengthen our balance sheet, ensuring we have a strong

foundation in place to support our late stage clinical program, while also advancing our manufacturing and intellectual property activities.

In 2009, we announced we had reached an agreement with the U.S. Food and Drug Administration (FDA) under the Special

Protocol Assessment (SPA) process for the design of a Phase 3 trial examining REOLYSIN in combination with paclitaxel and carboplatin in patients with

platinum-refractory head and neck cancers. Subsequently we worked to expand the trial to other international jurisdictions. In 2010, we received approvals from the U.K. Medicines and Healthcare products Regulatory Agency (MHRA) and Belgian Federal

Agency for Medicines and Health Products (FAMHP), and a no objection letter from Health Canada to conduct our Phase 3 trial in those countries. We have now enrolled patients in all four of these countries and continue to add clinical

sites. As well, we are expanding the study into additional jurisdictions.

Expanding Clinical Program

Throughout the year we announced and started enrollment in a number of new trials that examine the use of REOLYSIN in other indications. The trials announced this year include:

Through these partnerships, Oncolytics is able to substantially and cost effectively broaden its clinical program, which for the first

time includes randomized Phase 2 studies, as well as branch out into new indications of interest to the Company.

end, we announced the opening of enrollment in our previously announced 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. This trial both builds on our early work done with colorectal cancer patients, including a U.K. translational study that

recently completed enrollment, and continues to refine our focus with respect to Kras status in patients, which we are looking at in other studies.

Positive Clinical Data

During the year we continued to present positive clinical data supportive of our Phase III

program and our approach in other indications in a number of forums.

A poster presentation at the ASCO 2010 Annual Meeting entitled A 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), showing that of 19 head and neck cancer patients evaluable for response, eight (42%) had partial responses

and six (32%) had stable disease; mean overall survival in 24 treated head and neck cancer patients was more than eight months.

Interim data from a U.K. translational clinical trial investigating intravenous administration of REOLYSIN in patients with metastatic colorectal cancer prior to surgical resection of liver metastases was presented at the International Symposium on CTL and Immunostimulation. The

researchers concluded that reovirus can be successfully delivered specifically to colorectal liver metastases following intravenous administration as a monotherapy and that pre-operative treatment was safe, suggesting that application of oncolytic

viral therapy can be widened to the neoadjuvant setting. Subsequent to year-end, we completed enrollment in this study and expect to report full results in 2011.

In 2010, we also announced the publication of a paper entitled REO-10: A Phase I Study of Intravenous Reovirus and Docetaxel in Patients with Advanced Cancer, by Comins et al in the journal Clinical

Cancer Research. The paper reported final results from a combination REOLYSIN and docetaxel trial designed to evaluate the anti-tumour effects of systemic

administration of REOLYSIN in combination with docetaxel (Taxotere ) in patients with

advanced cancers. A disease control rate (combined complete response, partial response and stable disease) of 88% was observed. The authors concluded that the combination of reovirus and docetaxel was safe, with evidence of objective disease

response, and warranted further evaluation in a Phase II study.

We continued working with our contract manufacturer and other key resources in dealing with the numerous steps required in the development of

REOLYSIN , ultimately for commercial use.

Intellectual Property

Our focus on strengthening our patent portfolio in support of REOLYSIN development continued during the year, with us reporting that we now have 41 issued U.S. Patents and numerous other issued Patents in other jurisdictions.

Improved Financial Strength

In 2010, we significantly strengthened

our balance sheet raising gross proceeds of $28.77 million in a bought deal financing conducted through a syndicate of underwriters. In December, following substantial appreciation in the value of our shares, we announced the acceleration of the

expiry date of those warrants issued in November 23, 2009 and subsequently received an additional US$6.8 million from the exercise of 1,943,000 warrants. Most recently, our largest shareholder exercised 1,248,000 warrants issued in connection with

financing that closed in November 2010, adding approximately $7.7 million to our cash reserves.

Following these announcements we had approximately $55

million in cash on hand available to fund operations. The raise and exercise of warrants provides us with the necessary capital to complete our Phase 3 trial in head and neck cancer and advance an additional randomized study, while driving our

broader clinical program forward aggressively.

2010 and the period subsequent to year end saw us make substantial progress while also continuing to improve the Company s fundamentals. Our first Phase 3

trial continues to progress and our clinical program includes a growing group of Phase 2 trials, including two randomized studies. Our manufacturing efforts and our Patent portfolio also support and supplement this progress and the value it creates

for our shareholders and, for cancer patients that might benefit in the future.

I would like to thank both new and long-term shareholders for their

continued support during what was a truly exciting year for Oncolytics and invite you all to continue participating in our progress in the year ahead.

MANAGEMENT S DISCUSSION & ANALYSIS 2010

MANAGEMENT S DISCUSSION AND ANALYSIS

Management s Discussion and Analysis

of Financial Condition and Results of Operations

The following information should be read

in conjunction with our 2010 audited consolidated financial statements and notes thereto, which were 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 2011 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

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

REOLYSIN Development Update For 2010

Oncolytics Biotech Inc. is a Development

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

2010 with eight clinical trials, either enrolling patients or approved to commence enrollment. We sponsor four of these eight clinical trials which include our randomized Phase III head and neck clinical trial associated with our Special Protocol

Assessment agreement with the U.S. Food and Drug Administration ( FDA ). Of the four other clinical trials one was sponsored by the U.S. National Cancer Institute ( NCI ), two were sponsored by the Cancer Therapy &

Research Center at The University of Texas Health Center in San Antonio ( CTRC ) and one was sponsored by the University of Leeds ( Leeds ).

In 2010, enrollment in our randomized Phase III head and neck trial commenced and we expanded into other jurisdictions including the U.K., Belgium, and Canada.

We also expanded our clinical program in 2010, to include a Phase II squamous cell carcinoma of the lungs cancer study (sponsored by the CTRC), a Phase I colorectal

cancer study (sponsored by Oncolytics), a Phase II pancreatic cancer clinical study (sponsored by the CTRC), a randomized Phase II ovarian cancer study (sponsored by the Gynecologic Oncology Group ( GOG )), and a Phase I study in

pediatric patients with relapsed or refractory solid tumours (sponsored by the NCI).

During the year, we presented positive updated results from our

U.K. Phase I/II clinical trial focused on the head and neck at the ASCO annual meeting and published final results of our U.K. Phase Ia/Ib radiotherapy clinical trial and our U.K. Phase I docetaxel combination clinical trial. We also completed

patient enrollment in our U.S. Phase I/II recurrent malignant glioma clinical trial and our Phase II sarcoma clinical trial.