the quarter ended September 30, 2009

the quarter ended September 30, 2009

to a Late-Stage Clinical Program

to quarter end we took a major step forward by reaching an agreement with the

U.S. Food and Drug Administration (FDA) under the Special Protocol Assessment

(SPA) process for the design of a Phase III trial examining REOLYSIN in

combination with paclitaxel and carboplatin in patients with platinum-refractory

head and neck cancers. This announcement signals our transition to a

late-stage development company. We are currently working through the final trial

logistics with a number of participating centres, as well as other third

parties, in preparation to enroll our first patient.

is the first company to reach an agreement with the FDA on a Phase 3 trial

design for an intravenously-administered oncolytic virus under the SPA

process. This means that data from this Phase III trial may be used

to support a Biologics License Application, or BLA for REOLYSIN. This is a

significant step for this now first-in-class agent. Further, the SPA provides

guidance on the development of REOLYSIN in other cancer indications, which will

be helpful as we move toward filing additional Phase 3 protocols with the

the quarter, we continued to advance REOLYSIN through our existing clinical

program. In July, we completed enrolment in our U.K. Phase I/II

clinical trial using the combination of REOLYSIN with paclitaxel and carboplatin

in advanced head and neck cancer patients. The interim results of

this trial, announced in the spring of 2009, demonstrated that of 12 head and

neck patients evaluable for clinical response, five had experienced a partial

response (PR) and four had experienced stable disease (SD) ranging from two to

six months, for a clinical benefit rate of 75%. Updated results from

this trial are expected in the fourth quarter.

September, we announced that patient enrolment had started in a U.S. Phase 2

clinical trial examining REOLYSIN in combination with paclitaxel and carboplatin

for patients with metastatic melanoma. The trial is being sponsored

by the Cancer Therapy and Research Center at the University of Texas Health

Science Centre, San Antonio under a clinical trial agreement that allows for up

to five, Phase 2 trials using REOLYSIN in combination with various

advancement of our clinical and manufacturing programs in step remains a high

priority for us and in the third quarter, we announced that we had completed

development of the lyophilized (freeze-dried) formulation development program

for REOLYSIN. Lyophilized product is a standard end-use formulation

for widespread commercial use.

addition, we successfully completed an initial 100-litre production run of

REOLYSIN under cGMP conditions. With the expected initiation of our

first Phase 3 trial and the ongoing requirements of our expanding Phase 2

program, keeping pace with the manufacturing demands for REOLYSIN continues to

be critical to our success.

Exercise Strengthens Cash Position

appreciation in our share price in the third quarter triggered the acceleration

of the expiry dates for multiple series of warrants issued in 2008 and 2009. The

accelerated expiry and exercise of those warrants issued on December 5, 2008,

and those warrants amended December 18, 2008, as well as those issued on May 13,

2009, generated proceeds of approximately $14.9 million.

improved balance sheet and later stage clinical program leave us well positioned

to generate additional value for shareholders in the quarters ahead. Our primary

focus in the near term is the initiation of enrollment in our Phase III clinical

trial and advancement of our growing Phase II program, and we will provide

updates on our progress on both these fronts in the quarters ahead.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

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 nine months ended September 30, 2009 and 2008, and should also be read

in conjunction with the audited financial statements and Management's Discussion

and Analysis of Financial Condition and Results of Operations ("MD&A")

contained in our annual report for the year ended December 31,

2008. The financial statements have been prepared in accordance with

Canadian generally accepted accounting principles ("GAAP").

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.

risks and uncertainties include, among others, the need for and availability of

funds and resources to pursue research and development projects, the efficacy of

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

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

future expense levels being within our current expectations.

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

Biotech Inc. is a Development Stage Company

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